Amazon grows but all is not perfect

Amazon’s latest set of financials have been received with acclaim. In the fourth quarter of 2017, sales were up by a third and profits, measured in net income, roughly doubled. However, the results of its various business segments were mixed.

As has been the norm for several years, the AWS server business saw rapid growth over the year, with a 42% rise in revenue and a 39% increase in operating profits to $4.3bn.

The ‘International’ retail business in contrast, continued on its course of heavy losses. Sales rose by over US$10bn to US$54.3bn, yet losses more than doubled compared to 2016, to $3.1bn.

The core North American retail operation, which also includes media products as part of the Amazon Prime offering, leapt ahead. Revenues hit $106.1bn in 2017, up by almost a third. Profits were not quite as dynamic, up by a fifth to $2.8bn, with growth restrained slightly by higher operating expenses.

For those in logistics, the key number is Amazon’s logistics spend. For the year, ‘Worldwide shipping costs’ were up 31%, a number that has slowed moderately over the past year. For example, in Q3 2016, shipping costs were growing at a year-on-year rate of 43%. This slowing is despite an enormous increase in direct employees of 66% in a year to a total of 566,000.

Although there was great excitement over the big leap in sales at the North American business over Q4 that resulted in a doubling of profits, overall Amazon’s retail activities are still loss-making over the year, with the negative result in International cancelling out North America’s profit.

It is still the case that AWS, which is just 10% of sales, accounts for a major part of Amazon’s profits.

Overall, the direction of the e-retail operation seems very promising, with the possibility of profits in North America overtaking losses in the rest of the world. Amazon accounted for around half of all internet retail sales in the US.

The most pertinent questions seem to be, can Amazon get control of its costs in its retail business outside the US, and can it achieve the sort of market penetration seen in its home market?

Source: Transport Intelligence, February 6, 2018

Author: Thomas Cullen


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