Amazon sales are up, thanks to Prime Day

AAP & Internet Retailing

28th Oct 2016

Amazon has reported a 29 per cent rise in quarterly revenue, boosted by a big jump in sales from its Prime Day annual shopping festival, strong back-to-school shopping and its market-leading cloud services business. While the pace of growth has slowed slightly, the e-commerce giant is still on track to grow more quickly than the previous year.

Amazon’s net income rose to $US252 million, or 52 cents per share, from $US79 million, or 17 cents per share, a year earlier, marking the company’s sixth straight profitable quarter. As Conlumino’s CEO Neil Saunders pointed out, however, this equates to making just 0.8 cents on every single dollar taken.

“More disappointingly it undoes some of the recent progress Amazon has made on the profit front and puts it back to the same kind of position it was in at the end of the last fiscal. By way of contrast, last quarter Amazon made 2.8 cents on the dollar,” Saunders said.

According to Saunders, there are a number of reasons for Amazon’s lacklustre profit growth, despite growing sales. For one, the cost of fulfilment has increased faster than sales and was exacerbated by Prime Day, which included free delivery on most orders.

Amazon said in July that customers placed 60 per cent more orders worldwide in its second Prime Day sale despite technical glitches but it did not provide sales figures at the time.

“This, once again, underlines the fact that online, while lucrative in terms of growth, volumes and takings, is far less effective at generating profit,” Saunders said. Meanwhile, the company’s rumoured expansion into physical convenience stores and grocery collection points, could help it improve fulfilment costs over the long term.

The company also spent more on marketing and invested in technology and new ventures, which also ate into profits, but these decisions could pay off down the road.

Looking ahead, Amazon has predicted sales will grow 17-27 per cent in the coming quarter. Even if it reaches the top of its forecast, this would represent the slowest growth for the company this fiscal year, despite the critical holiday quarter.

“Admittedly, Amazon already dominates online holiday retail in the US –  accounting for 22.6 per cent of all online retail spend over the final quarter of the year – which makes gaining further share a challenge,” Saunders said.

“The cool spots in today’s numbers do nothing to take away from the fact that Amazon remains an impressive player and a threat to many other retailers. It is still growing its market share, especially in more embryonic categories like fashion, and is increasingly winning in grocery, albeit in a more limited way.

“Looking ahead we see no reason for the dominance of Amazon to diminish. Indeed, we see some positive gains from services like music and we believe that, over the course of the next fiscal, devices like Echo will sell well and become a more integrated part of users’ lives.”