Ecommerce giant Amazon had a blockbuster first quarter. The period from January 1 through March 31, 2018 easily surpassed analysts’ predictions. Revenue jumped 43 percent to $51 billion, compared with $35.7 billion in the first quarter of 2017.
Net income more than doubled to $1.6 billion compared with $724 million in the same quarter of 2017, due in large part to the performance of Amazon Web Services, which grew by more than 57 percent year over year — from $890 million to $1.4 billion. AWS now comprises about 11 percent of Amazon’s total sales and almost 78 percent of its operating income.
Overall, the company has now been profitable for 12 straight quarters.
Sales
Total net sales increased 43 percent to $51 billion in the first quarter, compared with $35.7 billion in the first quarter of 2017. While international net product sales racked up higher losses than last year, North American sales grew by 46 percent to $30.7 billion. AWS net service sales increased by 49 percent to $5.4 billion.
For the first time, Amazon is reporting sales from physical stores — Whole Foods Market and Amazon Go. First quarter net sales from those stores came in at $4.3 billion. Amazon earned $9.3 billion from commissions and fees from its third-party seller services, an increase of 44 percent over the $6.4 billion from the first quarter of 2017. Subscription services — encompassing Amazon Prime and ebook, digital video, and digital music — surged 60 percent over the first quarter of last year, going from $2 billion to $3.1 billion.
Expenses
Total operating expenses, at $49 billion, increased by 42 percent over the same period last year and the cost of sales grew 37 percent over the prior-year quarter. The number of employees increased to 563,100, up 60 percent over the same period in 2017, or 34 percent excluding employees from acquisitions last year of Whole Foods Market and Middle East online marketplace Souq.com. Amazon anticipates that expenses will continue to rise in 2018.
Amazon Prime
Amazon had long refused to reveal the number of Prime subscribers. But CEO Jeff Bezos recently stated that more than 100 million people use Amazon Prime worldwide.
In its first-quarter earnings call, Amazon announced it would increase the price of Amazon Prime for the first time in four years — from $99 to $119 beginning on May 11 for new subscribers. The $20 price hike will apply to existing renewals starting on June 16.
In a statement, Amazon said it is increasing the price because “both the value of Prime and the cost to offer it have increased significantly.” An extra $20 from 100 million people would generate an additional $2 billion in yearly revenue.
Outlook
In its outlook for the current quarter, Amazon stated that it sees no change in its surging revenue and that its operating income could triple. Amazon gave an income guidance range of $1.1 billion to $1.9 billion, up from $628 million in the second quarter of 2017, with net sales growing as much as 42 percent to between $51 billion and $54 billion.
Amazon is preparing for the day when sales tax will have to be collected from all consumers in all states. In its 10Q filing Amazon stated, “In the U.S., although Supreme Court decisions restrict states’ rights to require remote sellers to collect state and local sales taxes, the Supreme Court has recently agreed to hear a case that could overturn prior precedent. We support a federal law that would allow states to require sales tax collection by remote sellers under a nationwide system.”
Growth through Acquisitions
In a departure from past strategy, Amazon spent a record $13.9 billion on acquisitions in 2017, with the Whole Foods Market deal accounting for most of the expenditure.
Amazon made a total of 11 acquisitions last year and, excluding the Whole Foods deal, it still spent seven times more on acquisitions in 2017 than it did in 2016.
As for 2018, Amazon has already acquired two companies — cybersecurity company Sqrrl and smart doorbell firm Ring, which could be the second most expensive acquisition ever after Whole Foods Market. Analysts expect more acquisitions, many of them in the technology arena, as Amazon moves further into new digital endeavors.
Pay by Invoice
Amazon Business, the company’s B2B division, extends credit to a select group of pre-qualified buyers through Pay by Invoice. In a May 1 letter to all third-party sellers in the U.S. — not just B2B — Amazon advised that the program would apply to them, too, starting on June 30. Enrollment for sellers is automatic.
The new program reportedly has received mostly negative feedback from sellers on the forums in Seller Central. Sellers cannot opt out, but Amazon allows them to get paid faster for an additional 1.5 percent fee. Many smaller sellers believe the new requirement will hurt their cash flow.