Key Points:
- Amazon’s North American Retail segment accelerated nicely due to the timing shift of Prime Day; excluding that, the business performed similarly QoQ.
- Management’s outlook for Q3 revenue growth implies a similar trend QoQ on an underlying basis.
- We estimate that Prime Day roughly doubles the sales volume for the 4-day period.
- Amazon’s growth is accelerating in regions where it’s increasing shipping times, allowing for more consumables to be considered for purchase by Prime Members, which is more suburban and rural markets. Prime Member growth was double-digits for the quarter.
- Amazon’s grocery business (#2 in the US) continues to build momentum. One should expect Amazon to significantly increase the markets served with same-day perishables in the 2H and in 2027.
Our focus for Amazon is its North American Retail business segment (which we will call “Retail”) and how its expansion into grocery is disrupting the incumbents. Amazon’s disclosures are modest, but after over twenty years of closely following Amazon, we’ve become skilled at reading between the lines and Advan’s observed activity at the fulfillment centers and SpendViewTM (transaction data) are very helpful in supporting our reads. For the quarter, observed activity at the large fulfillment centers increased +16% (from +7% in Q1) and the regional sortation centers, +17% (from +11%). Observed spend for the quarter increased +14%, with April / May at +12% / +8%. June benefited from the shift in Prime Day from July.
1P sales growth accelerated from +9% in Q1 to +15% in Q2, Prime Day’s shift largely explains the acceleration. 3P seller services revenue also accelerated, but only +400bps. Additionally, the 3P seller mix figure fell from 62% in Q2’25 to 61%. This analysis points to Prime Day being more of a 1P event. The shift allows one to more accurately size of the Prime Day event, Prime Day was worth approximately $1.8B in incremental 1P sales for North America (Retail). The event lasted four days, and so on average, it roughly doubled sales*, which is an amazing amount to have to fulfill and deliver, and well above what the press reported. As shown below, activity at the fulfillment centers picks up ahead of the event and continues beyond it, and that’s why the event days’ observed activity is in the 34% range vs. the 100% sales figure.
Amazon’s guidance for 9-12% revenue growth in Q3 is well below Q2’s level (+20%). However, the +20% is 16pts excluding Prime Day, whereas the 9-12% is 13-16% excluding Prime Day. FX is also -100bps worse. Adjusting for FX pushes the 13-16% to 14-17%, i.e. very similar to Q2’s adjusted rate. Moreover, the chart above shows that July has ended on a very strong note.
We’ve seen the strongest growth by Amazon in the Southeast, including Texas and more rural states. There is more to go on expanding 1D and SD, and so, we expect above-trend growth for the next year or so. Relatedly, we suspect that Amazon’s increased service to more rural markets is one of the challenges facing Tractor Supply. Store-delivery by Walmart is another new-ish competitive challenge for Tractor. As Amazon and Walmart are in a Battle Royale, with no signs of easing, does that make Tractor unintentional roadkill?
Q1 YoY Rate of Spend on Amazon by Regio
Another feature of Amazon’s results catching our eye is that Product Revenue grew only +14% in Q2, which is lower than Product COGS (+20%), 1P units (+20%), and Shipping Costs (+19%). The delta is the result of offering sharp deals on Prime Day, deeper EDLPs, and the sales mix shifting to grocery and consumables. CEO Andy Jassy said that next-day and same-day units grew +40% and that members buying perishables grew +50% since the start of the year (the program began last September). He also emphasized that the center-store grocery category continues to grow nicely. (We’ve seen Numerator numbers suggesting 30% growth in the quarter). After Q1 results, we ball-parked Amazon’s grocery business at a $204B run-rate. We didn’t get anything specifically from the Q2 call to raise that estimate, but Jassy’s tone implied it had moved higher. Moreover, our read of the tone strongly suggests far more same-day markets (beyond the current 2,300) in the 2H and in ’27.
Jassy, “We always knew that if we wanted to serve the number of customers who want us to serve them and that we want to serve, we had to find a way to offer mass brands and perishables in a significant way. And we've tried lots of experiments over the last few years…, but we have finally found something that is a real needle mover for us in offering perishables in our same-day facilities that we're now able to offer same-day perishables in 2,300 cities around the U.S. If you look in those cities, 9 of the top 10 best sellers in those geographies are perishables… And we're not done experimenting, by the way, with other physical formats in the grocery side, but we've hit on something with same-day perishables in our same-day facilities as changing the trajectory of our everyday essentials business [toilet paper, etc.].” -- readers will recall Amazon’s success in grocery has been a huge margin blow to Big Food and it’s driving regional grocers to consolidate with national chains (Giant Eagle to Kroger). Also see Procter & Gamble’s recent results / challenges / volatility.
