For all intents and purposes, Amazon (NASDAQ: AMZN) had a fantastic third quarter. Revenue increased 12% year over year, and operating income was up 61%. This is the largest company in the world by sales, and conventional wisdom, as well as the law of large numbers, suggests that companies slow down as they get bigger. Not so Amazon, with its consistent double-digit growth.
The bulk of it is coming from the Amazon Web Services (AWS) cloud computing business. Although this segment has been around for a while now, it’s recently been enjoying massive growth from artificial intelligence (AI) development, much of which happens through its cloud platform.
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AWS sales increased nearly 40% year over year in the third quarter, its highest in almost five years, and on a base about 4 times bigger; five years ago, AWS had $11.6 billion in third-quarter sales, and this year, it had $46 billion.
There was something else lurking behind this spectacular performance, though, and every investor should pay attention.
The biggest e-commerce business in the country
Amazon is unmatched in U.S. e-commerce, with 40.5% of the market share, according to Statista.
The company continues to roll out new features and improve its speed and delivery to keep its top spot. It had its fastest speed ever in the third quarter, with 1.5 million products reaching customers within 24 hours, and its ultrafast delivery, which delivers within 30 minutes, is now available in 450 towns and cities. Groceries are growing 3 times faster than other products and now represent about half of all units, and items ordered through Amazon Now, which delivers groceries within 30 minutes, increased tenfold in the quarter from last year.
Despite all that and more, e-commerce growth was weak in the third quarter. Online store sales were up only 2% from last year, and third-party sales were up 9%. That’s a significant slowdown compared to recent quarters.
Data source: Amazon quarterly reports.
Online and third-party sales together were $115 billion in the third quarter, accounting for more than half of the total $201.9 billion. AI is dominating right now, but e-commerce is still the core business.
