Amazon is on a record run of profits, crushing its previous high mark again with $3.6 billion in net income in the first quarter. But it hasn’t always been that way.
For much of the tech giant’s existence as a public company, it ran slim profits or posted losses as it plowed whatever money it had back into growing the business. However, in the fourth quarter of 2017, when it posted more than $1 billion in net income for the first time, the company began a trend of skyrocketing profits that continues today.
Here are the key numbers behind the trend.
- The simple math behind the Amazon’s rapidly rising profits is that revenue is outpacing spending. Revenue barely beat expectations in the first quarter, through it grew at a healthy 17 percent year-over-year clip to $59.7 billion. Meanwhile, Amazon’s operating expenses grew by 12 percent to $55.1 billion.
- Amazon’s $3.6 billion in net income in the first quarter represents a rise of 118 percent over the prior year. Amazon posted earnings of $7.09 per share, shattering analyst expectations of $4.72 per share.
- Despite these record increases, Amazon remains well behind fellow tech giants in the profit department. Earlier this week, Microsoft reported net income of $8.8 billion, more than double Amazon’s record this quarter on about half the revenue of its rival.
Amazon Web Services is an important factor, as it is responsible for a huge chunk of the company’s overall profits and revenue, and that isn’t likely to change any time soon.
AWS – 13% of Amazon's sales, 50% of operating margin https://t.co/YuloN6t2Zr
— Ari Levy (@levynews) April 25, 2019
Amazon CFO Brian Olsavsky pointed to reduced hiring in 2018 and slowing growth of the company’s warehouse footprint as primary drivers of the reduced costs. In 2016 and 2017, Amazon grew its warehouse square footage by about 30 percent per year. In 2018, that number was cut in half to 15 percent growth.
Amazon finished the first quarter with a reduction in headcount for the second year in a row, following slowdowns from the busy holiday season. Headcount growth slowed in 2018 overall to 14 percent, down from jumps in the 40 percent range for each of the prior two years.
“We didn’t put a lot of new fulfillment capacity or infrastructure in place, at least compared to Q1 of last year, and hiring was moderate,” Olsavsky said on a call with investors Thursday. “We do expect this growth rate to be higher for all of 2019, so most of that will happen in the next three quarters.”
However, Olsavsky dropped a bombshell on Amazon’s earnings call Thursday afternoon, saying the company plans to replace two-day shipping with one-day shipping as the standard delivery time for Amazon Prime. Amazon intends to invest $800 million into that initiative in the second quarter alone, a move that could surely eat into profits today and going forward.
“We’re able to do this because we’ve spent 20-plus years expanding our fulfillment and logistics network,” he said. “But this is still a big investment and a lot of work to do ahead of us.”
He added: “We have a network tuned to two-day delivery right now, so we do need to build more one-day capacity with our transportation partners. But we have a head start and we are moving quickly.”
Amazon stock is up slightly this morning.