While much of the retail industry is still working to match Amazon.com Inc.’s Prime two-day free shipping program, the retail giant has a big plan to further cement its status as an ecommerce leader: transform Prime into a one-day free shipping offer, said Brian Olsavsky, Amazon’s chief financial officer, in a conference call with analysts.
“We’ve already started down this path,” he said, noting that the retailer is investing $800 million in the effort. “In the past months we’ve significantly expanded our one-day eligible selection and also expanded the number of ZIP codes eligible for one-day shipping.”
The move will likely lead to more impulse purchases on Amazon, says Jon Reily, vice president, global commerce strategy lead at digital marketing firm Publicis Sapient. “Logistics is now Amazon’s biggest problem to solve, and this shows that it is looking at the long term, and taking big swings to solve big problems,” he says.
Amazon embarks on that project at a time when it is growing quickly. The retailer’s profit more than doubled in the first quarter, thanks to strong growth in its Amazon Web Services cloud computing, advertising and other high-margin businesses. Amazon is No. 1 in the Internet Retailer 2019 Top 1000.
For example, Amazon reported $2.716 billion in revenue in its “other” revenue category, which is largely made up of its fast-growing advertising business. That’s nearly a 34% increase from the same period a year earlier.
Meanwhile, the growth rate of its physical products sales slowed. The ecommerce leader generated more than $34.283 billion in product sales in the first quarter ended March 31, up 8.5% from $31.605 billion a year earlier. That’s continues a trend of middling product sales growth; in the fourth quarter, for example, product sales rose 8.2% year over year.
Product sales in the first quarter accounted for 57.4% of the retailer’s total net sales. Product sales account for goods sold by Amazon and exclude revenue from service sales, such as AWS and commissions paid by Amazon marketplace sellers. The number of units of goods sold worldwide, by Amazon and by marketplace sellers, during the quarter increased 10%. While that unit growth is slower than previous quarters, it excludes a number of Amazon’s fastest growing segments, such as subscription services like Kindle Unlimited and Amazon Music Unlimited, Whole Foods Market sales, as well as non-retail areas like AWS and advertising, said Brian Olsavsky, Amazon’s chief financial officer, in a conference call with analysts.
Amazon’s revenue across all business segments totaled $59.700 billion in the quarter, up 17.0% from $51.042 billion a year earlier. Amazon’s net income was $3.561 billion, up 118.6% from $1.629 billion a year earlier, with Amazon deriving about 50.3% of its operating income from AWS and 51.7% from its North American segment. International operations continue to lose money.
Amazon’s online stores—product and digital sales—contributed $29.498 billion to the first quarter’s sales, up 9.5% from $26.939 billion a year earlier. Sales at physical stores—Whole Foods, Amazon Bookstores, Amazon Go, etc.—generated $4.307 billion, up slightly from $4.263 billion.
Third-party seller services (including marketplace commissions) added $11.141 billion in the quarter, up 20.2% from $9.265 billion. Sellers on Amazon’s marketplace accounted for 53% of units sold during the quarter, up one percentage points from 52% a year earlier.
Amazon’s key Q1 2019 retail and business developments
Amazon, with a workforce at the close of the first quarter of 630,600, up 12.0% from a year earlier, rolled out a number of retail and business technologies and services aimed at solidifying its ecommerce dominance.
During the quarter, Amazon:
- Expanded Alexa features internationally. For example, it launched Echo Show, a smart speaker with a touch screen, in India, France, Italy and Spain.
- Announced plans to bring Alexa to Brazil later this year. Developers can start building skills using the Brazilian Portuguese voice model, and commercial manufacturers can request access to the Alexa Voice Service developer preview to create devices with Alexa built-in.
- Expanded Prime benefits within Whole Foods Markets with more exclusive weekly deals on popular products across departments.
- Amazon and Whole Foods Market expanded Prime Now delivery to nine new U.S. markets. Currently, delivery from Whole Foods Market via Prime Now is available in 75 U.S. markets, and grocery pickup from Whole Foods Market via Prime Now is available in 30 areas.
- Launched Amazon Day, a new delivery option for members of its Prime loyalty program that enables them to select a day of the week to be their delivery date for their Amazon orders.
- Began accepting New York-issued Supplemental Nutrition Assistance Program (SNAP) EBT cards as part of an online pilot launched in collaboration with the United States Department of Agriculture.
For the first quarter ended March 31, Amazon reported:
- Net sales of $59.700 billion, a 17.0% increase from $51.042 billion in the same quarter in 2018. Of that revenue, about $34.283 billion stemmed from merchandise Amazon itself sold to consumers—what the e-retailer terms “net product sales”—up 8.5% from $31.605 billion year over year. The rest, $25.417 billion, came from commissions from outside merchants that sell on Amazon marketplaces, the Amazon Web Services cloud computing service and other smaller revenue sources. Those “net service sales,” as Amazon calls them, were up 30.8% from last year’s $19.437 billion.
- North American net sales of $35.812 billion, up 16.6% from $30.725 billion for the first quarter of 2018. North America accounted for about 60% of sales in the first quarter of 2018.
- International net sales totaling $16.192 billion, up 8.9% from $14.875 billion in 2018. International accounted for about 40% of sales in the first quarter.
- Amazon Web Services revenue was $7.696 billion during the quarter, up 41.4% from $5.442 billion a year earlier.
- Other income–largely coming from Amazon’s growing advertising business–totaled $2.716 billion, up 33.7% from $2.031 billion.
- Revenue from subscriptions, including Prime fees, were $4.342 billion, up 40.0% from $3.102 billion.
- Net income of $3.561 billion compared with net income of $1.629 billion in the same period in 2018, a 118.6% increase.
- Spending on marketing increased 37.3% to about $3.664 billion from $2.669 billion.
- Spending on technology and content, including fees for licensing content for its Amazon Video service, increased 17.3% to $7.927 billion from $6.759 billion.
- Spending on fulfillment increased 10.4% to $8.601 billion from $7.792 billion.
- General and administrative spending inched up to $1.173 billion from $1.067 billion.