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Amazon CEO Touts ‘Fastest Prime Delivery Speeds Ever’

Amazon soared past its own and Wall Street’s expectations in the first quarter. The e-commerce giant saw net sales increase 9 percent to $127.4 billion on net income totaling $3.2 billion in the first quarter, or 31 cents per diluted share.

Amazon’s stock shot up as much as 10 percent immediately after the earnings report released Thursday, but fell by 6 p.m. in the wake of news that the profit-generating Amazon Web Services (AWS) cloud computing business expects slowing growth in the second quarter.

For the second quarter, Amazon forecasts net sales of $127 billion to $133 billion, for growth of 5 percent to 10 percent over the year-ago quarter. Operating income is projected at $2 billion to $5.5 billion, compared with $3.3 billion in 2022’s second quarter.

In a Nutshell: Amazon is on track to have its “fastest Prime delivery speeds ever in 2023,” CEO Andy Jassy said during the company’s earnings call. Nearly 26 million customers ordered items for same-day delivery in the quarter, 50 percent more versus last year.

Jassy addressed the reshuffling in the company’s fulfillment network, which doubled in size during the Covid-19 pandemic.

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“As a result, we spent the last several months not only…redesigning dozens of processes to drive better productivity, but also re-architecting our placement approach and larger fulfillment center footprint to move from a national fulfillment network in the U.S. to a regional one,” Jassy said. “It means we’ve created each interconnected region in geographic areas with each of these regions having broad relevant selection to operate in a largely self-sufficient way, while still being able to ship nationally when necessary.’

Jassy said Amazon “just recently” completed this rollout, in which the e-commerce giant reorganized its national fulfillment network into eight regional hubs. The company deployed new AI-driven algorithms to predict what customers in the regional hubs will need and to guide inventory placement systems.

“We’re quite bullish on the early results. Not surprisingly, shorter travel distances means lower cost-to-serve and customers getting their orders faster,” he said.

Cost cuts appear to be helping productivity. Shipping costs increased 2 percent year-over-year to $19.9 billion, which represents a massive shift from its accelerated spending in the category throughout the pandemic.

Yet despite the low increase in shipping costs, Amazon shipped out 8 percent more units than the year-ago quarter.

For context, shipping costs in last year’s first quarter rose 14 percent, and rose 57 percent in the 2021 period. In the 2020 first quarter, which was the last pre-pandemic period for Amazon, these costs shot up 49 percent.

Fulfillment costs grew 21 percent to $603 million in the first quarter.

In the quarter, Amazon cut 76,000 full- and part-time jobs, leaving the company with 1.46 million employees. On a year-over-year basis, Amazon has cut 10 percent of its workforce. The numbers reflect recent layoffs, 18,000 of which occurred from November 2022 into early 2023, as well as warehouse attrition that typically occurs following the peak holiday shopping period.

Jassy, who succeeded founder Jeff Bezos in July 2021, has been aggressively slashing costs in areas such as the company’s unprofitable brick-and-mortar stores, with the Big Tech firm closing some of its Amazon Go convenience stores and Amazon Fresh supermarkets. It has also slowed new warehouse expansion and paused construction of its second headquarters in Virginia, dubbed HQ2.

Operating cash flow increased 38 percent to $54.3 billion for the trailing 12 months, compared with $39.3 billion for the trailing 12 months ended March 31, 2022.

Net Sales: Net sales increased 9 percent to $127.4 billion in the first quarter, compared with $116.4 billion in first quarter of 2022. Excluding the $2.4 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 11 percent compared with first quarter 2022.

Year over year, North America segment sales jumped 11 percent to $76.9 billion from $69.2 billion, and international segment sales increased 1 percent to $29.1 billion from $28.8 billion. When excluding changes in foreign exchange rates, international sales rose 9 percent.

AWS segment sales increased 16 percent year-over-year to $21.4 billion, up from the $18.4 billion generated in last year’s quarter.

Chief financial officer Brian Olsavsky noted in the call that Amazon expects April revenue growth rates to be 5 percentage points lower than the first quarter results as clients look at their cloud spending.

Of Amazon’s major segments, advertising is still showing the most growth, with revenue rising 21 percent to $9.5 billion, up from $7.9 billion in the year-ago period.

Net Earnings: Net income was $3.2 billion in the first quarter, or 31 cents per diluted share, compared with a net loss of $3.8 billion, or a loss of 38 cents per diluted share, in the 2022 period.

First-quarter net income includes a pre-tax valuation loss of $0.5 billion included in non-operating expense from the common stock investment in Rivian Automotive, compared to a pre-tax valuation loss of $7.6 billion from the investment in first quarter 2022.

Operating income increased to $4.8 billion in the first quarter, compared with $3.7 billion in year-ago quarter. That includes approximately$500 million in charges related to estimated severance costs.

AWS is still the Amazon unit pulling the most weight when it comes to generating profitability. Operating income in the cloud computing segment was $5.1 billion, compared with operating income of $6.5 billion in first quarter 2022.

The North America segment brought in operating income of $898 million, compared with an operating loss of $1.6 billion a year ago. The international segment incurred an operating loss of $1.2 billion, compared with operating loss of $1.3 billion in the 2022 quarter.

CEO’s Take: “While we’ve taken several actions to streamline our costs, we’ve been able to do so while still pursuing the key strategic long-term investments that we believe can meaningfully make customers lives better, and potentially change what Amazon is,” said Jassy in the call. “These are investments both in our larger businesses, as well as in areas like international expansion in our stores business, large retail market segments in which we’re still nascent like grocery and B2B—and allowing consumers to use Prime off of Amazon in our Buy with Prime Program…It’s hard to predict that all these will be successful. One or two working would change our business over the long term.”