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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...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.
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 firstname.lastname@example.org, 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.