Amazon enjoys Q1 revenue jump

AmazonUS e-commerce retailer, Amazon, has seen its first quarter sales rise 23 per cent to $35.7 billion, attributing the result to new markets and growing Prime business.

The company’s net sales of more than $US35.7 billion ($A47.9 billion) for the three months to March 31, up from $US29.1 billion ($A39 billion) for the same period last year and higher than analysts had predicted.

Net income rose from of more than $US200 million on the same quarter last year, to $US724 million.

Founder and chief executive Jeff Bezos attributed the glowing results to company’s expansion into India.

“Our India team is moving fast and delivering for customers and sellers,” he said.

Operating cash flow increased 53 per cent to $17.6 billion for the trailing twelve months, compared with $11.6 billion for the trailing twelve months ended March 31, 2016.

Net income was $724 million in the first quarter, or $1.48 per diluted share, compared with net income of $513 million, or $1.07 per diluted share, in first quarter 2016.

Amazon flagged more growth in its second quarter, with expectations of achieving net sales between $35.25 billion and $37.75 billion, or to grow between 16 per cent and 24 per cent compared with second quarter 2016.

Neil Saunders, managing director of GlobalData Retail said the rise in revenue was “respectable” but that the pace of growth for the online behemoth remains slower than most of the prior fiscal year.

“Some of this is the result of a less favorable exchange rate diluting contributions from the international business,” he said. “However, some is also down to a more challenging demand environment in North America which has limited spending uplifts on products within Amazon’s core territory.”

While retail sales growth has slowed, Amazon’s retail service revenue – which includes Prime subscription fees – jumped by almost 50 per cent over the prior year. A rise in subscriber numbers in North America and the roll out of Prime to new territories like Mexico have both underpinned this trend.

More modest product sales uplifts combined with high Prime subscription growth has resulted in a significantly narrower gap between shipping costs and shipping revenues. “This boosted operating income within North America, albeit only to a small degree,” said Saunders.

Such a pattern was not replicated on the international front where an unfavorable exchange rate plus extensive investments in new services and initiatives dramatically increased operating losses.

“Ultimately, the rise in international operating losses outweighed gains made closer to home, which resulted in a 6.2 per cent dip in overall group operating income,” said Saunders.

“As disappointing as this is, we do not believe this is a cause for too much concern, if only because the investments Amazon is making will pay dividends over the longer term.”

Saunders added that Amazon’s expansion in India showed the opportunity Amazon has in newer markets. “Here, the recent launch of Prime, the development of a Fire Stick optimized to the market, and investment in logistical and selling infrastructure have all helped to make Amazon the fastest growing marketplace in the country,” he said.

“Given the future scale and scope of Indian e-commerce, the investments are prudent and will make an extremely healthy contribution to overall growth in the years ahead.

“As Amazon splurges to forge ahead in new markets, greater profit stability in its home market arguably becomes more important. Even though the company’s margins remain thin, a firmer grip on fulfillment costs is currently helping to deliver this.

“That said, we believe that there are some future risks in North America – most notably from the more aggressive e-commerce push coming from Walmart and, to a lesser extent, other traditional players.”

Against this backdrop, Saunders said Amazon needs to maximise its potential in areas and categories where it is currently underweight.

This includes fashion where Amazon has launched the new development of private labels such as Goodthreads and Lark & Ro.

“Although these are embryonic, they provide Amazon with the building blocks to develop a much more compelling, and slightly higher-margin, fashion proposition which will help it to grab market share profitably,” said Saunders.

“This will be aided by new technology such as the Echo Look, which will help Amazon to sharpen its fashion credentials and services in a way that is challenging for other players to imitate.”

Access exclusive analysis, locked news and reports with Inside Retail Weekly. Subscribe today and get our premium print publication delivered to your door every week.

You have 7 articles remaining. Unlock 15 free articles a month, it’s free.