Optimal Prime: Amazon’s big quarter reveals its post-pandemic potential

Amazon Prime trailers are an increasingly common sight on Interstate 5, reflecting the company’s rapid growth. (GeekWire Photo / Todd Bishop)

Year-over-year quarterly growth of 44% would be significant for any company, but when the underlying numbers are this big, it starts to qualify as astonishing.

Amazon’s first-quarter sales of $108.5 billion compared with $75.5 billion a year earlier, setting a new record for the Seattle-based e-commerce giant and providing a glimpse of its strong position as the world emerges from the pandemic.

The company is easing its spending on COVID-19 initiatives, but consumers’ online purchasing habits appear to have changed permanently.

The result: profits more than tripled, to $8.1 billion, from $2.5 billion a year ago.

The impact of that structural shift on Amazon’s bottom line is the big takeaway from its first-quarter results, released Thursday afternoon.

Continue reading for highlights, and listen to our commentary on this episode of Day 2, GeekWire’s podcast about everything Amazon.

Joining me on the show are GeekWire co-founder John Cook, and former third-party seller Jason Boyce, co-author of “The Amazon Jungle” and founder and CEO of e-commerce agency Avenue7Media. Subscribe to Day 2 in any podcast app.

Amazon’s segment results reveal interesting trends.

On the basis of percentage growth, the biggest results were turned in by Amazon’s “Other” category, which is dominated by online advertising revenue. It rose 77%, to $6.9 billion, from $3.9 billion a year ago.

This is an additional way that the company makes money from third-party sellers, and as Jason points in the show, Amazon is unusual among tech giants in this regard in generating revenue from ads that drive traffic to its own site.

The company’s direct revenue from third-party seller services was $23.7 billion, up 64%. This reflects the fees that Amazon collects from retailers that sell on its platform, but as Jason also notes, it doesn’t reveal the overall gross merchandise value, or GMV, of third-party sales on, understating the size of the marketplace in that way.

Amazon Web Services continues to light up the company’s results.

AWS revenue was $13.5 billion, up 32%, and operating profits were a record $4.2 billion, demonstrating the continued strength of the company’s cloud division and the benefit it provides to the company’s bottom line.

Amazon’s optimism about AWS was the first point made by Brian Olsavsky, the company’s chief financial officer, on its earnings call with analysts.

“During COVID, we’ve seen many enterprises decide that they no longer want to manage their own technology infrastructure,” he said. “They see that partnering with AWS and moving to the cloud gives them better cost, better capability and better speed of innovation. We expect this trend to continue as we move into the post pandemic recovery. There’s significant momentum around the world, including broad and deep engagement across major industries.”

In our Day 2 podcast discussion, John points out that AWS makes the case for investors to value Amazon shares higher, more along the lines of a tech company than a retailer. Amazon stock is up about 1% this morning as of publication time, trading around $3,504 per share.

Amazon continues to build out its “last mile” delivery infrastructure.

On the conference call, Olsavsky confirmed that the majority of Amazon packages are now being delivered by its own “AMZL” delivery network rather than partners such as UPS and the Postal Service. Shipping costs rose 57% to $17.1 billion.

However, that primarily reflects larger shipping volume. As the company has expanded its delivery footprint, its cost of delivering packages on its own “has become very competitive” with what it pays partners to deliver them, Olsavsky said.

But the real advantage, Olsavsky said, is the company’s ability to send out packages in a “continuous flow,” with groups of orders leaving its warehouses five or six times a day, rather than getting handed off in a single batch to another delivery company once a day. Because of this, same-day delivery has become common on many items in areas where Amazon has Delivery Stations.

“That gives us a lot of ability not only to control the flow of the product, but also the flow of information,” he said, citing the ability to tell a customer how many stops away their package is. “We’re seeing a lot of progress in that area.”

In related news, Amazon said more than 100,000 people are now employed by Delivery Service Partners companies, independent businesses that contract with Amazon to deliver packages in Amazon-branded vans and uniforms.

Amazon’s employment declined in the quarter.

The company’s full- and part-time employees fell to 1.271 million people in the first quarter of 2021, down 27,000 positions from the fourth quarter of 2020.

In raw numbers, it’s the largest quarter-over-quarter employment decline in Amazon’s history. But flat or declining employment has been a common pattern for the e-commerce giant in the first quarter in years past.

That’s because it follows the peak holiday quarter, when Amazon boosts staffing at its fulfillment and distribution centers. As we note in the show, this appears to be a temporary blip in the company’s meteoric rise, and Amazon will likely return to growth mode given its expectations for the future.

See this related story for more on the employment trends.

Prime Day is coming in June.

Amazon was officially vague about the timeframe for its summer sales event, saying that it would take place in the second quarter. But on a call with reporters, Olsavsky let slip that it will be in June, specifically. However, he denied the conspiracy theory that Amazon moved the event up from its previous July timeframe to juice its second-quarter earnings. The company found in the past that the July 4 holiday complicated matters related to transportation and logistics, he explained.

On the show, Jason asks why Amazon can’t be more transparent about the timing, to help third-party sellers prepare. John, meanwhile, asks why companies need to create fake holidays to get people to buy things they don’t need.

Listen above, and subscribe to Day 2 in any podcast app.

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