Amazon reported generally better than expected Q3 Quarterly performance in revenue and profits amid meaningful online retail fulfillment efficiency gains.
Financial performance highlights included:
- Total quarterly revenues increased by 13 percent to $143.1 billion, exceeding consensus estimates.
- Tripling of year-over-year profitability to nearly $10 billion for the quarter.
- Revenues in the online retail platform business increased 7 percent on a year-over-year basis. The latest quarter included revenues from the July online Prime Day promotion and was described as the online retailer’s biggest event by volume.
- Revenues within AWS Cloud Infrastructure business of $23.1 billion, in-line with expectations.
- Revenues for the digital advertising unit reportedly soared by 26 percent to $12 billion, reportedly beating expectations and reflecting a higher percentage growth rate than that of Google.
In its coverage of the company’s latest results, business broadcasting network CNBC made special mention of Amazon CFO Brian Olsavsky’s remarks indicating that that the company has taken on cost efficiencies including expenses tied to online retail fulfillment, delivery and handling of inventory.
In an April Supply Chain Matters posting, we highlighted CEO Andy Jassy’s Annual Letter to Shareholders that made specific mention of a complete assessment of fulfillment costs:
“Last year, we started rearchitecting our inventory placement strategy and leveraging our larger fulfillment center footprint to move from a national fulfillment network to a regionalized network model. We made significant internal changes (e.g., placement and logistics software, processes, physical operations) to create eight interconnected regions in smaller geographic areas. Each of these regions has a broad, relevant selection to operate in a largely self-sufficient way, while still being able to ship nationally when necessary. Some of the most meaningful and hard work came from optimizing the connections between this large amount of infrastructure. We also continue to improve our advanced machine learning algorithms to better predict what customers in various parts of the country will need so that we have the right inventory in the right regions at the right time.”
The above strategy is now manifesting itself in lower operating costs along with more responsive order fulfillment and last mile delivery costs. The online retailer’s operating margin in the latest quarter was reported as 7.8 percent, the highest since 2021.
In the reporting of the latest quarterly performance, Jassy specifically indicated in-part:
“The benefits of moving from a single national fulfillment network in the U.S. to eight distinct regions are exceeding our optimistic expectations, and perhaps most importantly, putting us on pace to deliver the fastest delivery speeds for Prime customers in our 29-year history.”
Senior executives acknowledged that growth in the AWS unit has slowed in recent quarters which was attributed to ongoing “cost optimization” from IT focused customers.
Future Outlook and Perspectives
Regarding the all-important final Q4 quarter of holiday sales and fulfillment volumes, The company latest guidance indicates that net sales are expected to be between $160.0 billion and $167.0 billion, or to grow between 7 percent and 12 percent compared with fourth quarter of 2022. Operating income is expected to be between $7.0 billion and $11.0 billion, compared with $2.7 billion in the fourth quarter 2022.
In a Supply Chain Matters posting in late September, we highlighted that Amazon planned to hire 250,000 additional workers for the current holiday period, much more than other retailers and parcel carriers. We speculated that one driving factor is the recent announcement of a new logistics fulfillment partnership with online retail platform provider Shopify. Announced was the Supply Chain by Amazon services offering described as an end-to-end, fully automated set of supply chain services that provide online Shopify platform sellers with a complete solution to move products directly from designated manufacturers to customers around the world. This program is being billed as Amazon upping the ante in being a last-mile fulfillment services option to the likes of FedEx or UPS.
Finally, in the notions of future outlook, we call reader attention to our recent posting highlighting a Bloomberg published report describing Wall Street’s added interest with the $100 billion upside of the monetizing of Amazon Logistics as the next growth opportunity for the company.
What a difference a year can make.
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