Merchant Innovation

Amazon Bests Walmart

There was one word most analysts and investors were looking for when Amazon reported its second-quarter earnings yesterday (July 23).

Profit.

And Amazon delivered — sending its stock price up almost 19 percent during after-trading hours and securing its place as the world’s biggest retailer by market cap, knocking Walmart out of the position it has held for a very long time.

Amazon’s shares shot up to $573.45 in after-market trading, which valued the company around $267 billion (Walmart has a value of about $233.5 billion). 

The share value increase reportedly also made Amazon CEO Jeff Bezos about $7 billion richer. 

Looking more like its fourth-quarter earnings that had the benefit of the holiday season and less like last quarter’s slump, Amazon posted a quarterly profit of $92 million — a nice change of pace from the $126 million loss this time a year ago.

Amazon also posted an operating income of $464 million, which was also a stark difference from a loss of $15 million a year ago. Sales for the quarter increased 20 percent from the year prior to $23.18 billion (from $19.34 billion in Q2 2014).

Amazon’s new CFO Brian Olsavsky led the call — and covered a lot of ground.

“We are continuing to drive operational improvement in every business that we are in, but we are also investing in large opportunities that are in front of us, particularly in Marketplace Prime and AWS,” Olsavsky said during the call with analysts. “If you saw our shareholder letter this year, I think Jeff Bezos put it really well. He said we’re going to look for things that are important to customers. Customers love them — businesses that can grow to be a large size that can generate a high return on invested capital and are durable and can last for decades. So we will continue to invest in the businesses we think fit that profile, and we’re always looking for a fourth or fifth business that fits that profile.”

Amazon Prime

Amazon said it sold more units during this inaugural Prime Day than it sold during the biggest Black Friday in the company’s history. Worldwide order growth surged 18 percent year over year from 2014’s Black Friday levels and wound up leaving last year’s July 15 sales levels in the dust, by about 266 percent. Amazon also said its promotion got more people to try the service than had been seen on any previous day.

Olsavsky also gave some key metrics about membership growth.

“Prime membership continues to grow. Faster [than] outside data we gave at the end of the year. It’s growing faster outside the U.S. than it is in the U.S., and we are happy with both growth rates, quite frankly,” he said, pointing to what is helping Prime grow. “So I would say the Prime membership to Prime flywheel, the additional benefits we are adding to Prime, not only in North America but also internationally, and additional selection both retail and FBA which feeds the Prime flywheel.”

Greg Greeley, Amazon Prime VP, said that “customers worldwide ordered an astonishing 398 items per second and saved millions on Prime Day deals,” emphasizing that it exceeded expectations.

“Everything was a huge success. Customers save millions. New Prime members signed up in higher rates than we’ve ever seen. People bought more devices than on any other day … It was Christmas in July,” he said, reminding analysts that Amazon does not break out the impact of Prime Day in its earnings but factors it into the company’s overall guidance.

Amazon Fulfillment

Olsavsky also talked about the success Amazon has seen with its Fulfillment by Amazon (FBA) segment. In terms of third-party sellers, of those who entered the FBA program, 71 percent of those sellers said they saw a 20 percent or greater increase in sales.

Amazon Q2 Highlights

Olsavsky ran through a number of other highlights that happened during the second quarter, which included the following:

  • Launching Prime free same-day delivery in 14 U.S. metro areas.
  • Expanding Prime Now to three additional cities including London, the first international location to offer the service. Prime Now is available in nine cities.
  • Introducing Amazon Echo, the first device designed around the consumer’s voice.
  • Establishing the Alexa Fund — named for Alexa, the cloud-based voice service that powers Echo — which will invest up to $100 million to support developers, manufacturers and startups of all sizes to create new experiences designed around the human voice.
  • Launching Amazon Business, a B2B marketplace.
  • Expanding into Mexico with a physical goods store, Amazon.com.mx.
  • Expanding its Global Selling Program for sellers in India.

Outside of those figures, it was business as usual for Amazon’s earnings call — spouting off how Prime remains one of its flagship offerings, discussing how Amazon is investing in more products and gaining more sellers to its site and discussing how Amazon can expand its physical footprint with more distribution centers.

And, of course, how it can turn a profit when it really matters.

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Latest Insights: 

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The July 2019 edition of the FI Innovation Readiness Playbook examines how the innovation playing field is leveling as small FIs implement bolder strategies and larger banks adopt more measured approaches.

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