Amazon spent less money than expected on shortening its standard delivery time to one day last quarter — here's how it did it
Amazon Chief Financial Officer Brian Olsavsky said "efficiency" in its delivery infrastructure helped the company save on shipping costs last quarter. Amazon spent less than the $1.5 billion it had expected last quarter in shortening its standard delivery time from two days to a single day, Olsavsky said. The increased efficiency could lead to further cost savings and help Amazon spend less than initially expected in rolling out its one-day delivery program across its site. Visit Business Insider's homepage for more stories.
Amazon is becoming smarter with its delivery infrastructure — and that's helping the company save money in offering quicker delivery. Amazon's Chief Financial Officer Brian Olsavsky said during Thursday's earnings call that Amazon spent "slightly less" than the $1.5 billion it had earmarked for the holiday quarter in shortening its standard delivery time to a single day. He said Amazon's "efficiency" in delivery infrastructure helped reduce costs. "We are getting more efficient — both in our transportation and delivery methods — and also in our warehouses, putting inventory in the right places, getting closer to customers, and being able to handle it and transfer it more fluidly through the network," Olsavsky said during a press call on Thursday. The comments show that Amazon's plan to roll out one-day delivery across the site could cost less than expected. Amazon said last year that it planned to spend about $3 billion in building out its one-day delivery program and estimated on Thursday another $1 billion investment for this quarter. The cost savings are particularly important for Amazon, as one-day shipping is showing immediate results in improved sales. Amazon reported fourth-quarter earnings on Thursday that far exceeded Wall Street estimates, driving the stock up by more than 11% in after-hours trading. The number of products sold on Amazon jumped 22% year over year during the quarter, the fastest paid unit growth rate that the company has reported so far, according to SunTrust's analyst Youssef Squali. More specifically, Olsavsky pointed to the following four areas as helping Amazon become more efficient with its deliveries:
New transportation modes: Amazon has added new delivery modes and partners in recent years to offer faster delivery. These partners add new routes and become more efficient as they get more volume and package density, Olsavsky said. More local inventory: Amazon has to make sure it has more inventory closer to the customer to make one-day delivery work. That means being able to make better forecasts and spreading out inventory in more regions based on demand. Olsavsky said Amazon was in the middle of that transition to ensure more inventory is "more local." Broader fulfillment network: To have more local inventory, Amazon needs a broader warehouse and fulfillment network around the world. Amazon has grown the square footage for fulfillment by 15% in each of the past two years and plans to build more capacity this year. "We will have to scale our fulfillment center network further," Olsavsky said. Save on free-shipping costs: Since Amazon doesn't charge for shipping to its over 150 million Prime members, who pay an annual subscription fee, every efficiency it gains through its improved delivery infrastructure directly contributes to its bottom line. "We have a history here where we can look for opportunities to be more efficient and lower any cost penalties as we move forward," Olsavsky said. SEE ALSO: Jeff Bezos' 'shadow' adviser position is empty for the first time in years as Amazon and his personal life face unprecedented scrutiny — here are the 7 most successful executives who once filled that role Join the conversation about this story » NOW WATCH: People are still debating the pink or grey sneaker, 2 years after it went viral. Here's the real color explained.
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One of Amazon's most overlooked business just crushed another stellar quarter, and helped pump up profit margins
Amazon reported Thursday a big jump in revenue from its marketplace business, where it sells and...Amazon reported Thursday a big jump in revenue from its marketplace business, where it sells and ships products on behalf of other companies. Its marketplace revenue increased by 31%, the fastest growth in more than a year and more than double the pace of growth of its core direct online retail business. Company officials attributed the revenue rise in part to growing numbers of companies relying on Amazon to warehouse and ship their products and increasing numbers participating in its one-day shipping program. The business likely provided more profits to Amazon than its vaunted cloud-computing business. Visit Business Insider's homepage for more stories. Amazon's oft-overlooked marketplace business continued to boom during the holidays. The company is best known for operating an online store where it sells products directly to customers. But alongside that business, it's developed a thriving operation where it sells and ships products on behalf of other companies. That third-party seller services business, as Amazon calls it, saw its revenue jump 31% on an annual basis in the fourth quarter of last year to $17.4 billion, the company disclosed Thursday as part of its latest earnings report. That pace was more than double the rate at which its own direct e-commerce sales to customers grew during the period. It also represented the fastest growth for the marketplace business in more than a year. Amazon announced last spring that it would cut its standard shipping offering for members of its Prime subscription service from two days to one day. Since then, a growing number of its third-party merchant partners have begun to participate in its one-day shipping program, Brian Olsavsky, Amazon's chief financial officer, said on a conference call with analysts and investors on Thursday. That helped to boost the company's marketplace revenue, he said. "I think you'll see that more as we move into 2020," he said. The success of Amazon's marketplace business almost certainly boosted the company's bottom line, helping Amazon report much better-than-expected results for the holiday period. The business' gross margin — what's left of revenue after accounting for the direct costs of selling particular goods and services — is somewhere between 60% to 75% of sales, Wedbush financial analyst Michael Pachter has estimated. Amazon allows other major retailers, mom-and-pop, and product makers to list goods in its store alongside those it sells directly to consumers. It charges those companies a commission on their sales and levies extra fees if it handles their goods in its warehouses or ships the products. Even before the fourth quarter, Amazon's customers spent more on products offered by third-party sellers than they do on products sold directly by Amazon. The company's marketplace business is also closely tied to its fast-growing advertising business. Many of its third-party sellers pay to promote their products on Amazon's site and in its search results. Amazon's marketplace is generating profits — and controversy Despite the success of the marketplace business, Amazon analysts and investors have largely focused their attention and hopes for growth on its advertising business by itself or on Amazon Web Services, is much-ballyhooed cloud-computing offering. Pachter has estimated that Amazon's third-party services business represents the biggest driver of its profit growth of late — even more important to the expansion of its bottom line than AWS. AWS grew slightly faster than Amazon's marketplace business in the fourth quarter, increasing sales 34% from the year-earlier period. And Pachter estimates that the cloud-computing business' gross margin is slightly higher than that of its third-party services business. Even so, the marketplace business likely continued to be the bigger profit driver for Amazon, in large part because the revenue the company derived from from it was 75% greater than its AWS sales. Part of what helped drive the growth in the third party-business was that a growing number of companies are relying on Amazon to warehouse and ship their goods to customers, said Dave Fildes, Amazon's director of investor relations, on the conference call. "We continue to see some good growth in the third-party business," Fildes said. "You saw that accelerate some." While the marketplace business may have flown under the radar with investors and analysts, it's been getting increasing attention by public policymakers. Democratic presidential candidate Elizabeth Warren, in particular, has criticized Amazon for competing with its own customers, saying that it could use the data it gathered on their sales to create its own lines of private-label products. She's called for Amazon's marketplace business to be broken off from its direct retail business. Got a tip about Amazon or another tech company? Contact this reporter via email at email@example.com, message him on Twitter @troywolv, or send him a secure message through Signal at 415.515.5594. You can also contact Business Insider securely via SecureDrop. Read more: Amazon reported earnings way ahead of Wall Street estimates, and the stock is surging Amazon's ad business grew faster than Facebook's in Q4. Here's why ads could continue to give Amazon a boost. Amazon has a special business that investors 'don't understand,' and it's more important to the company than AWS Deutsche Bank says it hasn't seen this level of 'caution around Amazon shares' in a long time — but Wall Street remains bullish about the company ahead of its fourth quarter earnings report SEE ALSO: Warren's plan to fight big tech directly threatens one of Amazon's most successful businesses Join the conversation about this story » NOW WATCH: People are still debating the pink or grey sneaker, 2 years after it went viral. Here's the real color explained.
An analyst thinks Amazon's one-day shipping could add $50 billion in future revenue as Prime members are willing to shop more for faster delivery
A recent survey by investment firm Piper Jaffray found that 55% of Amazon Prime members in...A recent survey by investment firm Piper Jaffray found that 55% of Amazon Prime members in the US would shop more on the site as one-day shipping rolls out to most of its products. They also said their spending on Amazon would increase by an average of 30% because of faster delivery. Piper Jaffray estimates a 30% increase in shopping would translate to an additional $40 billion to $50 billion in future revenue for Amazon. Click here to read more BI Prime stories. Amazon shoppers are planning to spend and shop more on the e-commerce site because of one-day shipping — showing how the company's investment in faster delivery is likely going to lead to more sales. According to a recent survey of over 1,500 Amazon Prime members in the US, run by investment firm Piper Jaffray, 55% said they would use Amazon more as one-day shipping rolls out to most products on the site. They also said their spending on Amazon would increase by an average of 30% because of faster delivery. Piper Jaffray estimates a 30% increase in shopping would translate to an additional $40 billion to $50 billion in future revenue for Amazon, once most of the products become eligible for one-day shipping. "An increase in usage of that magnitude (~30%) by U.S. Prime members would have a material impact on Amazon revenue," Piper Jaffray wrote in a note published on Monday. The survey data is another sign of how Amazon's massive investment in shortened delivery time could pay off in a big way for the company. Amazon said it's spending about $3 billion this year — and $1.5 billion during the holiday season alone — to make one-day delivery its default shipping option for Prime members. Piper Jaffray's not the only bullish analyst on Amazon's one-day shipping program. RBC Capital wrote in a note earlier this year that Amazon shoppers who get same-day delivery are likely to be a more frequent and loyal shopper of the site compared with shoppers who don't get same-day delivery. RBC estimates Amazon's one-day shipping to increase its sales by at least $24 billion. The payoff is already starting to show up in Amazon's earnings results. The company's online and unit sales both bounced back after it announced its one-day shipping initiative earlier this year. Revenue for its most recent quarter also exceeded Street estimates, although the increased spending cut into its profit margins. Piper Jaffray wrote in Monday's note that the ongoing investment will likely continue to affect Amazon's profit margins. The firm lowered its operating profit estimates for Amazon for the next two years, citing the heavy spending, but also noted that margins would widen in a couple of quarters.SEE ALSO: Amazon has helped protect some vendors from the Trump tariffs by paying them up to 25% more for the goods it resells Join the conversation about this story » NOW WATCH: Inside the US government's top-secret bioweapons lab
Amazon Web Services says it's making a big hiring push for sales and marketing as its growth continues to slow
Amazon is investing more in marketing and salespeople "to handle a wider group of customers," Chief...Amazon is investing more in marketing and salespeople "to handle a wider group of customers," Chief Financial Officer Brian Olsavsky said in its quarterly earnings call on Thursday. Amazon Web Services started out primarily selling to startups, while Microsoft knows the enterprise business well. Hiring enterprise sales and marketing people can help AWS maintain its dominance of the enterprise market. Amazon added nearly 100,000 employees in the third quarter alone, bringing the Seattle-based company's workforce to 750,000 total. Most of the new hires are in fulfillment and transportation as Amazon expands one-day shipping ahead of the holiday season. Amazon reported less-than-expected profit in third-quarter earnings on Thursday — $4.23 per share on revenue of $70 billion. AWS raked in $9 billion in revenue for the quarter, and was responsible for nearly 72 percent of Amazon's total operating income over the period. Tech industry analyst Patrick Moorhead said Amazon's $2.3 billion in cloud sales growth for the quarter is "larger than the size of most cloud company's revenue" and chalked its revenue growth decline up to the "law of large numbers." Click here to read more BI Prime stories Amazon Web Services is hiring more sales and marketing people, as the dominant cloud computing business fends off challengers including Microsoft, the Seattle-based company disclosed Thursday. Amazon overall added nearly 100,000 employees in the third quarter alone, growing its workforce to 750,000 people. Brian Olsavsky, Amazon's chief financial officer, said during a call to investors after Amazon reported third-quarter earnings, said that the biggest driver of the hiring was adding people for fulfillment and transportation roles as Amazon tries to expand one-day shipping. Amazon expects the move will cost $1.5 billion in the next quarter. However, Olsavsky separately identified AWS sales and marketing as a major hiring priority for the company in the year to come. "We are investing a lot more this year in salesforce and marketing personnel mainly to handle a wider group of customers, an increasingly wide group of products – we continue to add thousands of products and features a year – and we continue to expand geographically," Olsavsky said of AWS. Amazon Web Services started off primarily selling to startups. Microsoft, meanwhile, has a long history of selling to large enterprise companies. Investing in enterprise sales and marketing people, as Olsavsky said Amazon is doing, could help the company maintain its dominance over Microsoft and others. Amazon's new sales and marketing hires are "especially for the enterprise market," Olsavsky said. Amazon Web Services declined to disclose how many of Amazon's 750,000 employees work in AWS. For a ballpark figure, more than 45,000 LinkedIn users list AWS as their current employer, though those profiles aren't always accurate. Amazon on Thursday reported earnings of $4.23 per share on revenue of $70 billion. Profit was less than Wall Street expected, sending Amazon stock down as much as 8.62% in after-hours immediately following the release. Amazon stock closed up 1% to about $1,780 per share in regular trading Thursday. AWS is a big driver of profit for Amazon. AWS revenue reached $9 billion in the third quarter. AWS was responsible for nearly 72% of Amazon's nearly $3.2 billion in operating income in the third quarter. But AWS' revenue growth continued to slow in the third quarter, dropping to 35% from 37% last quarter, continuing a pattern of slowing revenue growth. Analyst Patrick Moorhead of Moor Insights and Strategy said that the percentage points don't tell the whole story for AWS, however. Last year, AWS pulled in $6.7 billion in revenue in the third quarter — meaning that it grew by $2.3 billion in 12 short months. That $2.3 billion figure is "larger than the size of most cloud company's revenue," analyst Patrick Moorhead of Moor Insights and Strategy said. He chalked the revenue growth decline up to the "law of large numbers," meaning that it's simply harder to maintain impressive growth figures when the base is already so impressive. Amazon isn't alone in facing that particular problem, it should be noted. When Microsoft announced its own quarterly earnings release earlier this week, the company said that revenue growth of its Microsoft Azure cloud platform slowed too, down to 59 percent from 64 percent last year. Experts seemed mostly similarly unfazed by that drop and said Microsoft's Azure cloud business has an opportunity to close the gap with Amazon Web Services as more customers seek a hybrid cloud, which is basically a mix of on-premises and public-cloud resources.Join the conversation about this story » NOW WATCH: Jeff Bezos is worth over $160 billion — here's how the world's richest man makes and spends his money