Amazon reeled in profits for the sixth straight quarter and matched revenue estimates with $32.7 billion, but the e-Commerce brand missed big on estimated earnings per share, raking in $0.52 — far below the $0.78 figure of Wall Street expectations.
In a Q3 earnings statement, Amazon revealed:
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Net income was $252 million in Q3, well above the $79 million earned in Q3 2015 ($0.17 per diluted share, in third quarter 2015);
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Net sales increased 29% in Q3 to $32.7 billion, compared to $25.4 billion for the same period last year; and
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Revenue from cloud computing offering Amazon Web Services (AWS) tallied up at $3.23 billion, an increase over the $2.08 billion in the same period in 2015.
In generating such a significant revenue total, the e-Commerce giant’s AWS offering continues to push the brand into the black even as investments into logistics, online content, brick-and-mortar and technology offerings such as Alexa and Echo increase.
“I think we’ll see a continuation of that, and that’s a very positive thing,” said Neil Saunders, Managing Editor of retail consulting firm Conlumino. “While Amazon gains strength on the retail side, that service side’s profitability really helps answer some of the questions of the business not being very profitable for its size.”
New Investments May Shed Light On Earnings Miss
Amazon hasn’t lifted its foot off the e-Commerce pedal, but the retailer’s ventures into brick-and-mortar reveal that it is aggressively seeking expansion through every available channel, potentially providing insight into why the brand experienced such a major earnings miss.
“I think these investments have a massive impact on this quarter,” Saunders said in an interview with Retail TouchPoints. “They’re all in Amazon’s pipeline, and they might increase some of the investment costs associated with investigating and developing these plans even if they are embryonic. To be honest, Amazon’s always had very high investment costs. It’s a company that plows a lot of money back into new developments.”
While the retailer has opened physical stores in Seattle, San Diego and Portland, Ore., it also is reportedly opening up 20 grocery stores throughout the U.S. by 2018. The success of this pilot could lead the brand to build out a grocery presence of as many as 2,000 stores within 10 years.
“It’s interesting because Amazon is doing exactly the opposite of what other retailers are doing,” said Natalie Kotlyar, Partner in BDO’s Consumer Business Practice. “Other retailers are revisiting their fleet of stores and revisiting their operations to see areas to decrease locations, whereas Amazon is coming out to open these locations. Amazon does its research and planning, and one of the best qualities about them is that they’re very nimble and they react to these issues very quickly. Even though they are looking to roll out a bunch of these stores, I am sure the organization has thought it through, and if it doesn’t go the way they expect, they will either correct it or make changes.”
Prime Day Serves As Revenue, Membership Driver
Although Amazon doesn’t divulge many statistics related to its Prime Day sales event, which this year was held July 12, the brand reported that it was its highest sales day ever, indicating that Prime Day very likely made a significant revenue contribution to Q3.
The limited Prime Day data that Amazon did reveal indicated that customer orders surpassed Prime Day 2015 by more than 60% globally, and by more than 50% in the U.S. The Amazon third-party sellers and small businesses saw orders nearly triple year-over-year — both worldwide and in the U.S.
“While Prime Day allows Amazon to showcase sales, it also invites new Prime members,” Kotlyar said. “It’s a win-win day both from a sales perspective and a membership perspective.”
With an estimated 60 million+ Prime members before Prime Day 2016 took place, the additional memberships that flow in during the event are pivotal for the brand beyond Q3, and are likely to give more insight into how far the service can stretch. Prime members are almost five times more likely to make a purchase in the same shopping session compared to non-Prime members, according to e-Commerce traffic measurement research firm Millward Brown Digital.
“That’s something that keeps on delivering after Prime Day is done,” said Saunders. “It’s very significant for them in terms of financials, not just in this quarter but the impact it has over the whole of the year.”
