On Thursday, Amazon reported that its third quarter sales had risen by a whopping 34 percent to $43.7 billion compared to the $32.7 billion it posted a year ago. It was also above the expectation of one analyst of $42.14 billion. The earnings figures include sales of Whole Foods Market that Amazon acquired on August 28 this year.
The burgeoning sales were tempered by rising costs that were eating into profits. Operating expenses had risen 35 percent to $43.4 billion in the quarter. Net income for the quarter was just $256 million or 52 cents per diluted share, about the same as the same period a year ago. However, the earnings far exceeded the 3 cents per share predicted by a Thomson Reuters analyst.
Shipping costs increased 39 percent, a larger percentage than sales growth. The AWS cloud unit continued to do well bringing in revenue of $4.58 billion for the quarter, an increase of 41.9 percent, again above analysts’ estimates. Amazon has many diverse business units that are able to cushion its earnings.
The quarterly results reassured investors that Amazon could integrate its acquisition of Whole Foods into their business.
The growth in service sales was 44 percent greater than the 29 percent growth in product sales. Subscription sales also soared by 59 percent providing more predictable sources of revenue for the company.
Cooper Smith, head of Amazon research at brand intelligence firm L2 said that Amazon was transitioning towards becoming more of a services company as opposed to traditional retailing. He noted that subscriptions were its fastest growing business.
Global Data Retail Managing Director, Neil Saunders said that it was wrong to think of Amazon as either a retail or services business saying: “Amazon owns and operates an ecosystem of platforms that reinforce each other internally and with customers. The retail business gave Amazon the platform on which to launch its hardware business, which supports its content business, both of which reinforce the retail business.”
The firm also seems set to enter the pharmacy market as reported in a recent Digital Journal article.
Amazon’s retail margin of profit is slim, especially in North America where it is competing with other giants such as Walmart. Charlie O’Shea, the lead retail analyst at Moody’s said: “Margin pressure is not surprising given that in addition to heavy investment, heavy promotions are occurring in the U.S., specifically the on-going pricing battle with Walmart as these two retail heavyweights attempt to grow market share across multiple categories.”
Amazon, with its headquarters in Seattle Washington state is a US multinational e-commerce company. Amazon is the world’s largest online retailer. Jeff Bezos now the world’s richest man after the Amazon shares record on Friday, incorporated the company in 1994. Bezos is the CEO of Amazon.
The company went online as Amazon.com in 1995. Amazon has separate retail websites in numerous countries such as Canada, US, UK, France, Germany, China, India and several others countries. Bezos has other business interests as well as Amazon. He owns the Washington Post newspaper.
