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Amazon’s One-Day Delivery Still Hasn’t Returned to Pre-Pandemic Levels

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Prime Day’s return to the second quarter pushed Amazon to its third-straight $100 billion sales quarter, with the e-commerce giant generating $113.1 billion in the period. Although Amazon fell short of its first quarter profit, a record $8.1 billion, the company still reported a sizable haul of $7.7 billion.

And yet with all this demand, Amazon still believes its delivery and fulfillment operations have room for improvement.

In a Nutshell: Third-party orders represented 56 percent of Amazon’s total paid units in the second quarter, up from 53 percent one year ago, chief financial officer Brian Olsavsky told investors on an earnings call.

“The Prime Day event was the biggest two-day period ever for these SMBs, and our third-party revenue continues to grow significantly faster than our online stores revenue,” said Olsavsky.

Prime Day contributed 400 basis points (4 percentage points) to the year-over-year revenue increase. Excluding Prime Day sales, Amazon’s year-over-year growth rate dropped into the mid-teens. The two-year compounded annual growth rate remains in the 25 percent to 30 percent range, ahead of the company’s 21 percent pre-pandemic rate, Olsavsky said.

Worldwide shipping costs for the e-commerce giant jumped 30 percent to $17.7 billion, a tapered uptick compared to the cost increases seen throughout the pandemic. In the second quarter of 2020, for comparison, shipping costs jumped 68 percent to $13.7 billion.

In Q2, capital expenditures and equipment finance leases increased 74 percent versus the prior trailing 12-month period. Most of Amazon’s 2021 spend on fulfillment center openings are planned for the second half of this year, according to Olsavsky.

“If you step back, the Amazon-fulfilled unit volume—the units coming out of our fulfillment centers, both retail and FBA—has doubled in the past two years, and the AMZL delivery arm of our business has more than doubled in that time period,” Olsavsky said. “So you can see there’s been very strong multi-year demand here that we are still catching up with from last year.”

The consistently high demand and the need for more warehouse space means Amazon is “not back to where we want to be on a number of dimensions,” according to Dave Clark, the Seattle firm’s CEO of worldwide consumer.

“Our one-day delivery percentage has dropped and has not returned to levels seen pre-pandemic in the U.S.,” Clark said. “It’s on par and getting better than pre-pandemic in Europe, but while it’s improving in the U.S, it still hasn’t reached the pre-pandemic level so we have a lot of growth to do there.”

Amazon’s headcount continues its rapid growth, with the company now employing 1.33 million people worldwide, up 52 percent year over year. In the second quarter, Amazon hired 64,000 full- and part-time employees. In May, the company unveiled it would hire another 75,000 people within its fulfillment and logistics network across the U.S. and Canada, and offered higher starting wages at $17 per hour, with many new hires getting bonuses of up to $1,000.

Amazon unveiled its third-quarter guidance, with net sales expected between $106 billion and $112 billion, or growing 10 percent to 16 percent compared with last year’s comparable period. This guidance anticipates a favorable impact of approximately 70 basis points (0.7 percentage points) from foreign exchange rates.

“We do expect this pattern of difficult year-over-year revenue comps to continue for the next few quarters,” Olsavsky said, as sales totals are anticipated to slow down due to the lack of Covid-related e-commerce growth.

Operating income is expected to be between $2.5 billion and $6 billion, compared with $6.2 billion in third quarter 2020. This guidance assumes approximately $1 billion of Covid-related costs.

Operating cash flow increased 16 percent to $59.3 billion for the trailing twelve months, compared with $51.2 billion for the trailing twelve months ended June 30, 2020. Free cash flow decreased to $12.1 billion, compared with $31.9 billion in the year prior.

Net Sales: Net sales increased 27 percent to $113.1 billion in the second quarter, compared with $88.9 billion in second quarter 2020. Excluding the $2.5 billion favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 24 percent compared with second quarter 2020.

The growth represents a significant slowdown from the second quarter of 2020, which saw sales jump 41 percent as shoppers flocked to Amazon as many non-essential stores remained closed.

North America sales jumped 22 percent year over year to $67.6 billion from $55.4 billion in the year-ago period. International sales outpaced sales at home with a 36 percent jump to $30.7 billion over the $22.7 billion in 2020.

The other pillar of Amazon’s business, Amazon Web Services (AWS), grew revenue 37 percent in the second quarter, faster than 32 percent growth in the previous quarter. AWS revenue came in at $14.8 billion, well ahead of the $10.8 billion it brought in the second quarter of 2020.

Net Earnings: Net income at Amazon increased to $7.8 billion in the second quarter, or $15.12 per diluted share, compared with $5.2 billion, or $10.30 per diluted share, in the year-ago period.

Operating income increased to $7.7 billion in the second quarter, compared with $5.8 billion in second quarter 2020.

CEO’s Take: Like his predecessor, executive chair Jeff Bezos, new CEO Andy Jassy did not participate in the earnings call.

“Over the past 18 months, our consumer business has been called on to deliver an unprecedented number of items, including PPE, food, and other products that helped communities around the world cope with the difficult circumstances of the pandemic,” Jassy said in a statement. “Thank you to all of our passionate, innovative, mission-driven employees around the world for continuing to stay focused on delivering for customers—I am very excited to work with you as we invent and build for the future.”

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