Just when you thought a rapid vaccine rollout would lead to good news for brick-and-mortar stores, Amazon comes along and reminds investors just how large a shadow e-commerce can cast by crushing its first-quarter earnings.
I wrote in April that the king of e-commerce has a habit of exceeding expectations, and it came through on April 29 doing just that as it outperformed revenue growth guidance of 33% to 40% with a 44% year-over-year increase to its top line.
The first-quarter earnings report was strong across the board, but here’s one important number you might not have noticed.
Sales aren’t letting up …
The obvious story in Amazon’s earnings report was retail. U.S. sales accounted for 59% of total revenue in the first quarter as Amazon has stepped up its retail capabilities during the pandemic to provide customers with essentials (and everything else). This contributed to outsized growth over the past year.
While U.S sales increased 40% year over year, international sales were up 60% and accounted for 28% of total revenue. Amazon made a lot of progress with its international expansion in the first quarter, including a new website in Poland and the first international use of its cashierless Just Walk Out technology in London. These are just a glimpse of its efforts abroad as Amazon continues to widen its global reach.
… and retail is contributing more to the bottom line
Amazon Web Services had a great quarter as well, though it didn’t grow quite as quickly with revenue up 32% year over year. However, AWS has always punched above its weight in terms of profitability as the segment accounted for 59% of operating income last year despite making up just 12% of total sales.
But in the first quarter, the contribution from AWS to operating income shrank to just 47%, even as operating margin for the segment held steady at about 31%. What you probably missed from this latest quarter was the role the company’s retail operation played in the boost to profitability.
Across the U.S. and international retail operations, operating margin more than tripled year over year to 4.9%, helping to push Amazon’s total operating margin during the first quarter from 5.3% to 8.2%. That boost was partially driven by lower pandemic-related expenses, but profitability was still much higher than pre-pandemic levels.
The company’s net margin widened to 7.5% as well — net income of $8.1 billion more than tripled year over year.
A new era for Amazon
Amazon has been the leader in e-commerce for years, but the dramatic shift to digital shopping over the past year presents the company with huge opportunities. And with a new CEO coming on board later this year, there’s a lot for investors to track going forward.
The company has invested in many initiatives to solidify its dominant position, including fulfillment infrastructure to increase the speed and reach of its shipping services, eating into the bottom line. But it’s also working to lower these costs through its own last-mile delivery network, for example. As a retailer that has to account for cost of goods sold, margins will always be narrower than, say, a cloud computing company, but as e-commerce increasingly becomes the norm and shipping costs more competitive, Amazon is demonstrating that it can turn more of its top line into profits.
Amazon stock has increased over 40% in the past year. As the company continues to rack up sales, widen margins, and benefit from consumer shopping trends, investors can expect even more gains.
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