Brief

Amazon shatters Q2 expectations, posts record sales

Dive Brief:

  • Amazon on Thursday reported second quarter 2016 net sales of $30.4 billion, up 31% from $23.2 billion in the second quarter of 2015—the online retail giant’s fifth consecutive quarter in the black, and its third all-time profit milestone in as many quarters.
  • Amazon recorded a quarterly profit of $857 million, or $1.78 a share, compared with $92 million, or 19 cents a share, a year earlier. Analysts expected Amazon to post profits of $1.11 per share, according to estimates compiled by Thomson Reuters and cited by the Wall Street Journal. Operating income was $1.3 billion in the second quarter, compared with $464 million a year ago.
  • Amazon captured $82.8 billion in e-commerce sales over the last 12 months, growing 15.8% from the previous year, according to eMarketer data sent to Retail Dive. Wal-Mart, Amazon's closest rival, took in just $13.6 billion in e-commerce sales over the same 12-month cycle.

Dive Insight:

Following better-than-expected earnings in three of the last four quarters, Amazon investor enthusiasm reached a fever pitch heading into Thursday’s Q2 earnings announcement. The earnings report arrived just two weeks after its second annual Prime Day sales event—dubbed the biggest single shopping day in company history. Amazon did not disappoint, reporting its most stellar quarter to date and further quelling investor fears it might never achieve consistent profitability.  

Amazon's Q2 gains are "not a surprise," Natalie Kotlyar, partner in consulting firm BDO USA’s Consumer Business practice, told Retail Dive Thursday afternoon. "They seem to be doing everything right."

Held July 12, Prime Day does not even factor into Amazon’s Q2 earnings, but its success still offers tremendous insight into Amazon’s recent financial hot streak. Prime Day—which offers shoppers a dizzying 24-hour barrage of discounts and deals—exists primarily to boost interest in Amazon’s $99 annual Prime shipping and services program. Shoppers must join Prime to access Prime Day deals, and once they sign up, they’re hooked: 91% of first-year paid subscribers renew for a second year, and 96% of second-year paid subscribers stick around for a third year.

Prime customers aren’t just loyal, however. They’re also lucrative. While Prime subscribers still make up less than 20% of Amazon’s total customer base, their annual spending accounts for close to 60% of the company’s gross merchandise value, according to a recent Deutsche Bank note. Moreover, Prime subscribers spend an estimated $1,200 per year, versus $500 annually for non-Prime members.

While it’s virtually impossible to understate Amazon Prime’s importance to the company’s recent growth spurt, analysts at Pacific Crest believe Amazon is also deriving increasing benefits from lower-profile initiatives including four-to-five-day shipping, Pantry items and add-ons. “[W]e believe that these slower-speed, incremental-cost or add-on item options have become significantly more prevalent, particularly as Amazon has pushed into household items and food,” the bank wrote in a note published last week, MarketWatch notes.

Other quarterly highlights singled out by Amazon in its Q2 earnings announcement include Prime’s recent move into the booming Indian market; the expansion of the Amazon Dash Button fulfillment program, which added 50 new brands during the quarter to push past the 150-button milestone; and the growth of Amazon Business. The B2B initiative now serves more than 400,000 businesses and generated over $1 billion in sales in its first year, Amazon said Thursday.

"They spread themselves out and go into various types of services and geographies to continue growth," Kotlyar said. "They don’t rest."

To that end, Amazon is no longer just a retailer. Its wildly successful Amazon Web Services cloud computing division, which helps offset money-losing efforts like two-day shipping, increased revenue to $2.89 billion, up from $1.82 billion a year earlier. The division appears to be on pace to reach Amazon founder and CEO Jeff Bezos’ goal of $10 billion in annual sales.

Looking ahead, Amazon forecast third quarter net sales between $31 billion and $33.5 billion, up between 22% and 32% compared to the third quarter of 2015. Operating income is expected to fall somewhere between $50 million and $650 million, compared with $406 million in the year-ago period.

Kotlyar expects Amazon to continue to thrive in Q3, although she said external forces like ongoing economic uncertainly and an increasingly unpredictable U.S. election cycle could disrupt the company's momentum. "I have no doubt they’re going to do well," she said. "The question is just how well."

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Filed Under: Corporate News