Amazon slammed its foot on the gas in the third quarter, with sales rising 13 percent to $143.1 billion, and net income coming in just under $10 billion. This is the second highest since the e-commerce giant generated a record $14.3 billion in net income in the fourth quarter of 2021.
In a Nutshell: CEO Andy Jassy again emphasized the regionalization of Amazon’s fulfillment network in the company’s Thursday earnings call, identifying it as a driver of higher local in-stock levels than anticipated, as well as a catalyst for shorter shipping distances. But the company isn’t done innovating.
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“We’ve reevaluated every part of our fulfillment network over the last year. The first substantial re-architecture is centered on the regionalization change. We obviously like the results, but don’t think we fully realized all the benefits yet,” Jassy said. “We continue to make steady improvements and we’re fine-tuning the placement algorithms to enable even more in-region fulfillment and to further increase consolidation to fewer shipments.”
Faster delivery also means Prime members are purchasing more frequently, according to chief financial officer Brian Olsavsky.
Olsavsky said Amazon was pleased with the early regionalization results. The Seattle company has reduced the number of line haul lanes it operates on, while increasing volume within existing lanes and adding more direct fulfillment center-to-delivery station connections.
“We have also been focused on optimizing inventory placement in the new regionalized network, which when coupled with the simplification mentioned earlier, is helping contribute to an overall reduction in cost to serve,” Olsavsky said. “Additionally, in the quarter, we saw benefits from lower inflation, primarily within line haul, ocean and rail shipping rates, which were partially offset by higher fuel prices.”
Jassy said Amazon has also identified several substantial changes to its inbound processes, which could have a “significant impact on our cost to serve and speed of delivery.”
Shipping costs rose 9 percent in the quarter to $21.8 billion, with total units shipped also growing 9 percent. Similarly, fulfillment costs increased 8 percent to $22.4 billion in the quarter.
Amazon expects net sales to increase between 7 percent and 12 percent this fourth quarter, or $160 billion to $167 billion. Operating income is expected between $7 billion and $11 billion, compared with $2.7 billion in last year’s fourth quarter.
Olsavsky said he expects fulfillment and transportation capital expenditures to be down versus last year.
Net Sales: Net sales at Amazon jumped 13 percent to $143.1 billion in the third quarter, compared with $127.1 billion in the year-ago period. Excluding the $1.4 billion favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 11 percent.
North America segment sales increased 11 percent year-over-year to $87.9 billion. International segment sales jumped 16 percent year-over-year to $32.1 billion, or increased 11 percent excluding changes in foreign exchange rates.
Segment sales at Amazon Web Services (AWS) ticked up 12 percent ahead of 2022 third-quarter numbers to $23.1 billion.
The third-party seller service sales, which encompasses the Fulfillment by Amazon (FBA) program, jumped 20 percent to $34.3 billion. Advertising services sales showed the biggest sales improvement, increasing 26 percent to $12.1 billion, while subscription services sales like Prime grew 26 percent to $10.2 billion.
Net Earnings: Net income increased to $9.9 billion in the third quarter, or 94 cents per diluted share, compared with $2.9 billion, or 28 cents per diluted share, in the 2022 period. The figure includes a pre-tax valuation gain of $1.2 billion stemming from Amazon’s investment in Rivian.
Operating income increased to $11.2 billion in the quarter, compared with $2.5 billion a year ago.
CEO’s Take: Jassy said in the call that sellers have had a “very positive” early response to Supply Chain by Amazon, a service aimed at helping them simplify their end-to-end delivery and fulfillment needs.
The CEO also noted that Amazon has “gotten a lot better” at consolidating shipments within its fulfillment network, saying that customers “actually start to consider you for a lot more items than they otherwise would.”
“When you know if you’re going to order something that you need in the same day or next day, you’re not going to consider it if it’s coming in three or four days,” Jassy said. ‘But when you’re consistently getting it set up same-day or the next day, it just changes what you’re willing to do.”
