Amazon impressed Wall Street with a big earnings beat and gave yet another sign that its cost cuts are paying major dividends across its fulfillment and delivery network.
Net sales increased 11 percent to $158.9 billion in the third quarter, compared with $143.1 billion in the year-ago period. The sales figures came in a shade ahead of the $157.2 billion expected by analysts polled by LSEG.
Net income increased to $15.3 billion in the third quarter, or $1.43 per diluted share, well in front of the $1.14 forecast. Profits in the third quarter of 2023 were $9.9 billion, or 94 cents per diluted share.
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Two of the tech titan’s lingering cash cows—Amazon Web Services and its advertising segment—grew at 19 percent a piece to $27.5 billion and $14.3 billion, respectively.
CEO Andy Jassy updated investors on the progress of Amazon’s regionalization initiative across its logistics network to get more items to end consumers—and lower the cost in the process.
Jassy said the company has opened more than 15 inbound fulfillment centers in recent months. These warehouses are where Amazon receives products from manufacturers and sellers before shipping them to other fulfillment centers.
“While we’re still relatively early in this re-architecture, we’ve already improved our ability to spread inventory across our fulfillment centers by 25 percent year over year,” said Jassy. “This allows us to have more of the requisite items in fulfillment centers closest to the customer, so we can compile shipments and ship to customers even more quickly.”
Amazon has made “hundreds” of changes to its U.S. inbound network in recent months, saying the company expects these changes will further improve inventory placement, offer faster delivery times, save transportation costs and increase units shipped per box.
Cutting costs at Amazon has been priority number one for Jassy and co. since early 2023.
Fulfillment costs at the e-commerce giant totaled $696 million in the third quarter, down 5 percent from the $732 million spent in the year prior.
And while global shipping costs increased 8 percent to $23.5 billion, that is still less than the 12 percent increase in paid units delivered compared the year prior, illustrating a decreasing cost per shipment.
The cuts enable the Big Tech firm to carry more items for shoppers that are looking to trade down, with Jassy saying in an August earnings call that consumers were exhibiting more cautious spending habits.
“It’s pretty easy to choose to supply [lower average selling price items], but it’s much harder to be able to afford to economically supply them,” Jassy said. “One of the reasons that we have been so maniacal about cost to serve over the last few years is that as we’re able to take our costs to serve down, it just opens up the aperture for more items, particularly lower ASP, items that we’re able to supply in an economic way.”
The commentary came days after a report indicated Amazon wants to launch a low-cost online store offering goods made in China that would directly compete with Temu.
Brian Olsavsky, Amazon’s chief financial officer, highlighted the value that the lower ASP products bring to the online marketplace.
“You have to have fast delivery to be able to sell those products to customers,” Olsavsky said. “When you do, it results in a stickier consumer relationship, higher orders, building larger baskets, which helps our ship economics. Repeat orders are stronger.”
On a year-over-year basis, Amazon says same-day deliveries increased more than 25 percent, with 40 million customers using the service. The company said in July that it offers same-day delivery in U.S. 120 metro areas. According to supply chain consulting firm MWPVL International, there were 53 sub-same-day delivery centers active as of the first quarter, with Jassy saying in the call that the tech titan will continue to roll out more of these facilities.
Elsewhere in the Amazon logistics network, Jassy highlighted the opening of Amazon’s $200 million robotics fulfillment center in Shreveport, La., which he said is the first facility that incorporates the firm’s newest robotics inventions that simplify stowing, picking, packing and shipping processes.
Thus far, this new design reduces fulfillment processing time by up to 25 percent, increases the number of items offered for same-day or next-day delivery, and is expected to drive a 25 percent improvement in cost to serve during the peak season.
Without getting into detail, Jassy said AI will play is going to be a “big piece” of Amazon’s robotics strategy, acknowledging the company’s recent hiring of employees from an “incredibly strong robotics AI organization.”
In September, Amazon hired three of the founders of Covariant, as well as multiple engineers and researchers from the team. Covariant develops artificial intelligence software for warehouse robots.
As part of the deal, Amazon will also license Covariant’s foundation AI models.
For the fourth quarter, Amazon expects net sales to be between $181.5 billion and $188.5 billion, which would represent growth between 7 percent and 11 percent from the year-ago quarter.
Operating income is expected to be between $16 billion and $20 billion, compared with $13.2 billion in fourth quarter 2023.
