Amazon.com Inc., said today net income decreased to $3.2 billion in the third quarter, compared with $6.3 billion in the comparable period last year, as labor and other costs rose. The decline in net income for the quarter ending Sept. 30, 2021, follows six consecutive quarterly increases dating back to the start of the COVID-19 outbreak.
Amazon said the number of its full- and part-time employees increased 30.5% to 1.46 million from 1.125 million a year earlier. Fulfillment expenses in Q3 were up 25.8% from the comparable period.
Amazon’s U.S. GMV, including both first-party and third-party sales, hit $92.39 billion in Q3 2021, Digital Commerce 360 estimates, a rise of 9.8% year over year. Given that total U.S. ecommerce reached $210.35 billion, Amazon accounted for 43.9% of the U.S. ecommerce market during the period, up from 41.0% in Q3 2020.
North American sales, which excludes revenue from the Amazon Web Services (AWS) cloud computing unit but includes advertising and seller commissions and fees, increased 10.3% over the third quarter of 2020, a period when the pandemic was raging and online shopping surged. Marketplace sellers accounted for 56% of units sold on Amazon’s worldwide sites in the third quarter of this year, up from 54% a year earlier.
The ecommerce giant also warned of coming difficulties in the holiday period as its costs continue to rise. ”In the fourth quarter, we expect to incur several billion dollars of additional costs in our consumer business as we manage through labor supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs—all while doing whatever it takes to minimize the impact on customers and selling partners this holiday season,” Andy Jassy, Amazon CEO, said in a written statement. “It’ll be expensive for us in the short term, but it’s the right prioritization for our customers and partners.”
In an call with investment analysts, chief financial officer Brian Olsavsky said Amazon incurred $2 billion in added costs from wage increases, sign-on bonuses and higher prices for trucking services and material like steel used to build Amazon’s growing network of fulfilment centers. He said those costs would add $4 billion to Amazon’s expenses in the fourth quarter.
Amazon said it expects net sales in the fourth quarter of between $130.0 billion and $140.0 billion, a rise of between 4% and 12% compared with the fourth quarter of 2020. But with rising costs, operating income in the fourth quarter could be as low as zero, Amazon warned.
Amazon’s concerns about the holiday season surprised Wall Street, which had expected the ecommerce powerhouse to have sufficient inventory and logistics expertise to weather the supply chain crisis.
But there was plenty of positive news in Amazon’s earnings report as well. “Despite recent supply chain and labor challenges having caused the retail giant to fall short of Q3 expectations, Amazon still managed to post their fourth consecutive quarter exceeding the $100 billion mark for revenue earnings,” said Kristina Goldberg, senior vice president, media services at Adswerve, a marketing consulting company. “To compensate for the slowing demand in online shopping, Amazon is fortifying its search, CTV and other strategies and capabilities to capture consumers’ attention and create personalized ads.” CTV refers to “connected TV,” or video that streams over the internet.
Colin Sebastian, senior research analyst with Baird Equity Research, was similarly nonplussed. “Headline revenue and earnings miss will overshadow a more positive structural shift in the business. Services revenues exceeded product sales for the first time,” he says.
Online store sales rose only 3.3% to $49.94 billion compared with a year earlier when the pandemic kept many physical stores closed. Third-party seller service revenue, which includes commissions on sales by marketplace merchants and the fees they pay Fulfillment by Amazon, increased 18.7%.
Among the major initiatives Amazon launched in Q3 was its Local Seller program, which allows marketplace sellers with brick-and-mortar operations to offer BOPIS and local delivery services. The move helps Amazon solve the last-mile problem and suggests the ecommerce company is increasingly committed to an omnichannel strategy.
“Amazon’s recent announcement to roll out ‘Local Selling’ confirms the need and business opportunity for retailers to meet consumers where they are, particularly as consumer preferences continue to be redirected in an omnichannel environment,” said Harvey Ma, senior vice president of omni, consumer and retail performance of North America at NielsenIQ. “NielsenIQ data indicates that currently, 21% of consumers need to look for new retail options given stores they previously shopped in have closed.”
One bright spot for Amazon was its market-leading Amazon Web Services cloud computing unit, which saw Q3 revenue rise 39% to $16.11 billion from $11.60 billion. AWS is responsible for the majority of Amazon’s profit.
Amazon is the leading online retailer in the world’s largest markets other than China and No. 1 in the 2021 Digital Commerce 360 Top 1000.
In the third quarter ended Sept. 30, Amazon reported:
- Net sales increased 15% to $110.8 billion in the third quarter, compared with $96.1 billion in third quarter 2020.
For the 12 months ended Sept. 30, Amazon reported:
- Operating cash flow decreased 1% to $54.7 billion for the trailing twelve months, compared with $55.3 billion for the trailing twelve months ended Sept. 30, 2020.
- Free cash flow decreased to $2.6 billion for the trailing twelve months, compared with $29.5 billion for the trailing twelve months ended Sept. 30, 2020.
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