Amazon’s 2016 second-quarter financial statements for the period ending June 30 showed robust growth, extending its profitability to a fifth straight quarter after years of spotty results.
Revenue was $30.4 billion compared to $23.2 billion in the second quarter of 2015, an increase of 31 percent. Operating income was $1.3 billion in the second quarter, compared with $464 million in the second quarter of 2015, an increase of 177 percent. The company posted an operating margin of 4.2 percent, compared with 2.0 percent in the prior year second quarter. Unit sales growth increased 28 percent over the same period in 2015.
Amazon dominates the online shopping landscape. A research study of 2,000 U.S. consumers performed by Survata, a market research firm, on behalf of ecommerce technology provider BloomReach, showed that 44 percent of respondents regularly go directly to Amazon first to search for products, compared to 34 percent who start with one of the top three search engines — Google, Bing, or Yahoo.
Amazon Flexes Its Muscle on Prime Day
On July 12, Amazon held its annual Prime Day of special sales for members. The goal is to get more people to sign up for the Prime service, which has a $99 annual fee. Prime members spend an estimated $1,200 a year on Amazon, whereas non-members spend roughly $500, according to Consumer Intelligence Research Partners. Once shoppers sign up for Prime, they remain loyal. After their first year of membership, 91 percent of customers sign up for a second year.
Amazon reported that Prime Day 2016 was its biggest sales day ever, with worldwide orders rising more than 60 percent compared with the 2015 Prime Day. While Amazon did not release sales amounts, analysts estimated them between $500 million and $600 million. In the U.S., orders increased by more than 50 percent; worldwide the increase was 60 percent. Amazon offered new discounts as often as every five minutes, compared with every 10 minutes last year.
Third-party sellers on Amazon’s Marketplace also participated. For limited-time “Lightning Deals,” Amazon required sellers to offer their lowest price since Jan 1, 2016 — with prices at least 20 percent off their Amazon list price — and meet minimum stock levels. Buyers flocked to these sales.
Third-Party Sellers Generate Sales, Profits for Amazon
Worldwide, over 2 million third-party sellers participate in the Amazon Marketplace. Seventy thousand have annual sales in excess of $100,000. In the second quarter of 2016, 49 percent of units sold (over 1 billion units) on the Amazon platform came from third-party sellers, according to research firm Statista. Financial analyst firm Seeking Alpha reports that these sales are actually more profitable for Amazon than sales from its own inventory because of the added services many third-party sellers buy from Amazon. ChannelAdvisor says that third-party sales are growing twice as fast as Amazon’s own sales.
Professional sellers — those that pay a monthly subscription fee — with the best prices and the best customer satisfaction ratings appear in the “Buy Box,” the first highlighted listing for a product. These sellers are also more likely to use Fulfillment by Amazon, which also makes their items eligible for Prime and Super Saver Shipping.
To help its third-party partners grow their businesses, Amazon offers the Amazon Lending Program, wherein Amazon has provided over $1.5 billion in short-term loans to small businesses in the U.S., U.K., and Japan with a total outstanding loan balance of about $400 million, according to the 2015 Amazon annual report.
Drone Delivery Coming?
Amazon is not resting on its laurels. It constantly adds new products and enhances services. The company recently added a vehicle section with comments and reviews, although actual vehicles are not available. Amazon Fresh delivers fresh food, with same day or next morning delivery in many locales. Prime members in 27 cities receive free same-day delivery seven days a week on qualifying orders over $35.
Amazon hopes to implement Prime Air, a delivery system using small drones to get packages to customers within 30 minutes. An estimated 44 percent of the U.S. lives within 20 miles of one of Amazon’s 82 fulfillment centers. The company plans to build at least 30 more.
Through Amazon Home Services, customers in heavily populated areas can choose from vetted professionals for yard, home improvement, assembly, and computer services. Musical instrument and language lessons are also available. Amazon is expected to shortly unveil a platform with an extensive catalog of music — similar to iTunes — for $10 per month.
Amazon presumably seeks to disrupt every industry it enters. It killed retail chain bookstores and is now being blamed for the demise of entire malls. It is gaining traction in the movie and music industries and in the next few years it could threaten UPS and FedEx by offering speedier package delivery.
Founder Jeff Bezos has articulated Amazon’s mission statement, “Our vision is to be Earth’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online.”