Amazon.com Inc. today reported that its second quarter North American sales increased 36% compared to the same period last year while global sales grew 29%.
Net income decreased 96% to $7 million from $191 million in the prior-year period. That included a $65 million net loss from Amazon’s acquisition of Kiva Systems Inc., which makes robots for distribution centers.
In a call with analysts, Amazon chief financial officer Tom Szkutak emphasized that the e-retailer is investing heavily as it prepares for the holiday season. He noted the company has announced plans to open 18 new fulfillment centers this year as it seeks to get closer to customers to provide faster delivery, with six of those new facilities already open.
“We’re opening a lot of fulfillment centers and adding capacity for Amazon Web Services and infrastructure to support our retail business,” he said. “We’re investing across the business and getting ready for Q4.” Amazon Web Services is a provider of data storage and computing capacity to companies of all kinds.
Szkutak said, however, that he does not foresee Amazon trying to extend same-day delivery to many markets. “We don’t see a way to do same-day delivery on a broad scale economically,” he said. Amazon currently offers same-day delivery to shoppers in 10 major U.S. metropolitan areas.
“Amazon continues to invest like an army girding for the battle of the century,” says David Spitz, president and chief operating officer of ChannelAdvisor, which helps retailers sell on online marketplaces like Amazon.com and eBay.com. “They have a wide head start and aren’t sitting around.”
Spitz says he expects Amazon to continue to gain market share. He notes Amazon reported that 40% of units sold in the second quarter were by outside sellers on Amazon’s marketplace, and not Amazon itself, an increase from 36% in the second quarter of 2011. That, he notes, helped improve Amazon’s gross margin to 26% from 24%. Szkutak also pointed to the growth in sales by third-party sellers as boosting margins. Amazon only reports the commission it takes on each sale in the third-party seller category, so the profit rate is higher than for Amazon’s own sales that include the cost of purchasing the goods sold.
Amazon on average takes 10-12% of the purchase price on sales by outside merchants on Amazon.com, says ChannelAdvisor CEO Scot Wingo. He notes that Amazon’s total revenue is growing at twice the rate of e-commerce as a whole, that its non-media sales are growing at 3x e-commerce and sales by third-party merchants 4-5x. “Very amazing when you consider the scale of what Amazon is building,” Wingo says in a blog post.
Amazon’s management is plowing money back into the company, seeking future growth, noted analysts Michael Graham and Shawn Rassouli of investment firm Canaccore Genuity. “Today’s shareholders continue to foot the bill for tomorrow’s Amazon, the world’s largest (and possibly only) distribution and fulfillment network for physical goods (sold by others), digital media, and bits of information. Ok, so they probably won’t win the digital media fight outright, but they are looking pretty good on the other two,” they write in a report.
They also note that Amazon’s shipping costs as a percent of revenue declined; some observers attribute this to Amazon’s growing network of fulfillment centers that allow it to ship goods at lower cost to more customers and still have them arrive quickly, for example in the two-day window promised to Amazon Prime customers. The Conaccore analysts also said the decision not to pursue same-day delivery broadly should shorten the duration of Amazon’s heavy spending on building out its fulfillment network, which has been cutting into profits in recent quarters.
For the second quarter ended June 30, Amazon, No. 1 in the Internet Retailer the Top 500 Guide, reported:
- Revenue of $12.83 billion compared with $9.91 billion in Q2 2011, a 29% increase. Excluding $272 million in the unfavorable impact of currency fluctuations, growth would have been 32%. Amazon had projected Q2 growth of 20-34%.
- Sales in the U.S. and Canada increased 36% to $7.326 billion from $5.406 billion in the year-ago quarter. North American expenses increased 34% to $6.98 billion from $5.19 billion, leaving operating income for the region at $344 million versus $214 million a year earlier.
- Non-North American sales increased 22% to $5.51 billion from $4.51 billion. International segment expenses increased nearly 27% to $5.49 billion, leaving only $16 million in segment operating income versus $172 million a year earlier.
- Worldwide media sales, including books, music and entertainment content, grew 13% to $4.12 billion. Sales of electronics and other general merchandise worldwide increased 38% to $8.16 billion.
- Services sales, including Amazon Web Services, a provider of data storage and computing capacity to companies of all kinds, rose 57% to $2.043 billion from $1.302 billion.
- Fulfillment expenses increased 44% to $1.356 billion from $941 million in Q2 2011. Marketing expenses increased 57% to $537 million from $341 million and spending on technology and content increased 55% to $1.082 billion from $698 million.
- Amazon has more than 180 million active customer accounts and 2 million merchants selling on its web marketplaces.
For the first two quarters of 2012, Amazon reported:
- Revenue of $26.02 billion, up 32% from $19.77 billion in the first six months of 2011.
- Product sales increased 27% to $22.04 billion from $17.31 billion. Revenue from services grew 62% to $3.98 billion from $2.46 billion.
- Net income of $137 million, down 65% from $391 million a year ago.
Amazon projected third quarter of sales of between $12.9 billion and $14.3 billion, which would represent growth of between 19% and 31% over Q3 2011.
Amazon’s stock price went up 1.5% in the first hours after its earnings release.