EcommerceBytes-NewsFlash, Number 2857 - July 27, 2012     2 of 3

What Merchants Should Know about Amazon's Q2-2012 Performance

Email This Story to a Friend

Amazon released its second quarter 2012 earnings on Thursday, revealing that it grew net sales 29% (or 32% excluding the impact of foreign exchange) while net income decreased 96%, which included $65 million of estimated net loss related to the acquisition and integration of Kiva Systems. But as always, the company remained tight-lipped about much of its operations. Amazon's quarterly post-earnings conference calls highlight how much data the company keeps to itself.

During the analyst call, CFO Tom Szkutak said active customer accounts exceeded 180 million. Unfortunately it's difficult to measure the growth rate of worldwide active seller accounts with any accuracy, since the company only reveals that the number "exceeded 2 million" in Q2, which it has for the past several quarters.

However, Amazon does make it clear that third-party merchants are making a bigger contribution to Amazon unit sales (the company does not release dollar sales of its 3P merchants). Seller units were 40% of paid units - compared to 39% in Q1 and 36% in Q2 of 2011 - which Szkutak said was an approximately 400 basis points increase as a percentage of total units. Amazon's worldwide paid unit growth was 43% in Q2.

While Amazon had said in April that third party sellers experienced a 60% growth in unit sales in the first quarter, it did not reveal yesterday the growth rate for the second quarter.

The 3P business also helped Amazon's operating profit and gross margins and continued to be "very, very strong."

One analyst asked the CFO whether, given that the 3P business accounted for 40% of unit sales, "at what point do you believe the customer experience will deteriorate?" and asked about FBA adoption.

Szkutak replied that FBA was certainly having an impact on 3P unit sales. "We've looked at and have been working very hard over a number of years on improving the experience for both customers and for sellers, and FBA is an example of that," and he mentioned FBA items were eligible for all of Amazon's shipping programs for customers. "So I don't think of it as a bad thing at all - I think of it as a good thing."

"The benefit of having third parties on our platform is we get to add great new selection, we also have competing offers directly on our detail pages," he said, adding that it creates a competitive environment on Amazon's platform.

Another analyst asked about shipping costs, which the analyst said were lower as a percent of sales for the first time in nearly three years. "The driver, it looks like, is shipping cost per unit which fell about 10%. Can you talk about how much of that might be attributable to proximity of distribution centers to metro areas, lower fuel, more favorable carrier pricing, et cetera."

Szkutak said there was a number of different factors, "but certainly one of them is we are getting closer to our customers and that's just with our wide multi-node fulfillment network, so that's certainly having an impact on that. And again we have a lot of opportunities to improve that overtime, but again, the team is making good progress and you are seeing that reflected in the results so far."

(Note that as its FBA business grows, it adds to Amazon's negotiating power with shipping carriers. In addition, Amazon has a somewhat complicated way of reimbursing sellers for shipping costs, and when the USPS increases rates, generally does not increase seller shipping reimbursement.)

Another analyst asked if same-day delivery was on the horizon for Amazon customers. Szkutak said Amazon was always trying to get closer to customers, but "we don't really see a way to do same-day delivery on a broad scale economically."

The CFO said Amazon's third-party seller business (referred to as "3P") and Amazon's mix of businesses were having an impact on gross margins. "We continue to try to work with our partners to get even better prices on the goods that we provide for customers, which is certainly impacting it. Mix of business, things like AWS, is certainly impacting that as well, given the growth rates there."

Szkutak said Amazon had announced plans to build 18 new fulfillment centers this year, and had already opened 6 of them, with the potential to open even more than that.

An analyst from Citigroup asked about mobile, noting that eBay had said it was quite material for their business.

Szkutak said smart phones and tablets were "significant tailwinds" for Amazon. Unlike eBay, it does not break out sales by mobile shoppers. He said mobile is having a "very nice impact" and expects the "big tailwind" to continue.

Szkutak said Amazon's total business grew at 32%, and told analysts to keep in mind that the second quarter of 2011 had been the highest-growth quarter it had had in 10 years (51% for the total business), making it a "challenging compare" (he noted that some of Q2 2011's strong growth came from delayed sales at the end of Q1 caused by the earthquake in Japan).

In responding to a question about short-term equity versus long term growth, Szkutak told analysts that as they look at the third-quarter specifically, they should keep in mind that Amazon is getting ready for the fourth quarter, its most seasonal quarter. "Given the growth Amazon had, we're seeing strong growth, so we're investing heavily to get ready for that."

Szkutak later said one thing to keep in mind for guidance in the upcoming quarter (Q3) was that Amazon was getting ready for the fourth quarter, its most seasonal quarter, by opening fulfillment centers and adding capacity for AWS and its retail business - "we're getting ready for Q4."

Comment on the EcommerceBytes Blog.

About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to

You may quote up to 50 words of any article on the condition that you attribute the article to and either link to the original article or to
All other use is prohibited.