Just days after outlining its same-day delivery success, Amazon reported a strong second-quarter showing that saw net sales jump 11 percent pace to $134.4 billion on net income of $6.7 billion.
In a Nutshell: “Regionalization is working,” said Amazon CEO Andy Jassy during the earnings call, referring to the company’s shift from a single national U.S. fulfillment and transportation network to eight focused regions.
According to Jassy, since the regionalization shift began, Amazon touches delivered packages 20 percent less, and travels 19 percent fewer miles to make a delivery. It now fulfills 76 percent of orders from the region around the customer.
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Quarterly shipping costs rose 6 percent to $20.4 billion, the largest percentage increase in three quarters. Paid units shipped rose by 9 percent, outpacing the 8 percent year-over-year growth in the prior two quarters.
Chief financial officer Brian Olsavsky said Amazon still has room to cut costs as it optimizes its fulfillment network, which nearly doubled through the Covid-19 pandemic.
“We’re still in that journey to reclaim the cost structure that we had previously, and consider this a point along the road,” said Olsavsky. “We’re encouraged by some of the margin improvements we’re seeing, particularly over the last three to five quarters, but it’s still underway. There’s still a lot to be regained in our fulfillment area, and the teams are working very hard on it.”
Jassy said same-day warehouses are Amazon’s most cost-effective fulfillment vehicles. Their integration with nearby fulfillment centers enables the company to deliver “several million” SKUs either via same-day or one-day delivery, he added.
“They’re smaller facilities—big enough, obviously, to hold a steady state of 100,000 SKUs—but with less conveyance and more streamlined picking,” Jassy said. “We actually think that the expansion of those is going to not just help with speed and with demand, but we’re going to also like the cost structure associated with that.”
For the third quarter, Amazon expects net sales between $138 billion and $143 billion, a 9 percent to 13 percent increase compared with the year prior.
Operating income is seen at $5.5 billion to $8.5 billion, versus $2.5 billion in the third quarter of 2022.
Net Sales: Net sales increased 11 percent to $134.4 billion in the second quarter, compared with $121.2 billion in second quarter 2022.
North America segment sales jumped 11 percent year-over-year to $82.5 billion, while international segment sales increased 10 percent annually to $29.7 billion.
AWS segment sales increased 12 percent year-over-year to $22.1 billion. Growth rates stabilized after several quarters of slowing growth.
Third-party seller service sales rose 18 percent to $32.3 billion, while advertising service sales grew 22 percent to $10.7 billion. Subscription services, including Prime membership revenue, rose 14 percent to $9.9 billion.
Net Earnings: Net income was $6.7 billion in the second quarter, or 65 cents per diluted share, compared with a net loss of $2 billion in the year prior, or 20 cents per diluted share, in the 2022 second quarter.
Operating income increased to $7.7 billion in the second quarter, compared with $3.3 billion in a year ago.
CEO’s Take: Jassy touched on both the success of Prime Day and the growth of the Buy with Prime service, which allows Prime members in the U.S. to shop directly from merchants’ online stores and use the features of the program without accessing Amazon itself.
In the second quarter, Amazon offered customers 144 percent more deals and coupons than the year prior, Jassy said, with Prime Day having a similar year-over-year impact. Prime members purchased more than 375 million items worldwide and saved more than $2.5 billion throughout the event.
“Merchants in early trials who use Buy with Prime saw their shopper conversion increased by 25 percent on average, which makes a real difference to their business,” Jassy said. “Merchants who participate in Prime Day activities in aggregate experience a 10X increase in daily Buy with Prime orders during the sales event period versus the month before we announced Prime Day.”
