Amazon reported financial results for the December-ending quarter this week, exceeding Wall Street expectations in profitability. There were additional nuggets of information that add even more emphasis toward the online provider’s momentum in providing an online fulfillment platform not only for its own retail businesses, but for a growing number of other sellers as well.
Highlights of the all-important holiday 4th quarter included:
- Total revenues of $43,7 billion, up from $35.7 billion in the year earlier quarter. This was a 24 percent increase on a constant currency basis.
- Net income of $749 million, compared with $482 million in the year-earlier holiday fulfillment quarter.
- Paid unit growth (volume) occurring on the Fulfilled by Amazon platform grew 24 percent in the quarter.
Highlights of the 2016 full year:
- Total revenues of $136 billion compared with $107 billion in the prior year, a 27 percent increase.
- Operating income of $4.2 billion compared with $2.2 billion in the prior year, a 91 percent increase.
- Net income of $2.4 billion compared with $596 million in the prior year, a considerable and noteworthy increase.
- The Fulfillment by Amazon platform reportedly grew 70 percent year-over-year in 2016.
Culling through the senior management briefing, associated documents, and business media reports, we noted other interesting data.
Industry competitors and observers of Amazon, along with external logistics providers, wonder aloud how the online retailer can afford to invest billions in added logistics and customer fulfillment capabilities. The simple answer is the contribution offset from other businesses the Cloud-hosting Amazon Web Services (AWS) business. According to senior management, AWS is running at an annual run rate of $14 billion. AWS operating income in 2016 was $3.1 billion, nearly double that of the prior year.
While on the topic of added investments in logistics and transportation capability, a combination of 26 warehouses and/or fulfillment centers were operationalized in 2016, 23 of which were in the second-half of the year. Executives noted that there was 20 percent growth in fulfillment center square footage in 2015, followed by 30 percent similar growth last year. That was to prepare for the 40 percent surge in volume that occurred in the final quarter.
One analyst queried management on this buildout, asking whether this was directed as just Amazon’s volume needs or building out direct connections for suppliers as-well. Company CFO Brian Olsavsky acknowledged that constantly supplementing capacity is both for Amazon as well as FBA seller needs. Regarding the recently announced additional plans for Cincinnati (Hebron Kentucky Airport) serving as the U.S. air hub, the CFO indicated that the airport will create thousands of jobs over time. Readers can interpret that latter statement in many ways, but think for a moment how many workers are employed in air hubs of either FedEx or UPS today. Moving forward, the indication was that future investments would be balanced more globally.
Finally, we provide some additional background information relative to our 2017 prediction that Amazon will continue duel with Alibaba for global online platform dominance. Responses to analyst’s questions indicated that in China, the strategy is to provide that country’s online consumers a trusted and authentic product, both domestically and from international brands through the Amazon Global Store. With India, efforts were described as “still very early” but encouraged from the response being received from both online customers and sellers alike.
From all the data, we reviewed to-date, it’s clear that Amazon’s ongoing fulfillment momentum and capabilities are the more pertinent headline as we begin 2017. As noted in our prior posting relative to 2017 challenges for retail industry supply chains, Amazon is a compelling industry presence requiring a lot of attention by the broader industry.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.