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Amazon’s operating income down 40% YoY on the back of India investments

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Amazon Inc. reported net income of $256 million for the quarter ended September 30, 2017 (Q3 2017), marginally up from a net income of $252 million in the corresponding quarter last year. The company’s operating income, however, was down 40% year-on-year (YoY) to $347 million for the quarter from $575 million in Q3 2016. This is significant because in the current quarter Amazon’s operating income also includes income of $21 million from Whole Foods Market, which it had acquired on August 28, 2017.

While answering an analyst question regarding losses in the international retail segment, during the company’s earnings call, Amazon’s CFO Brian Olsavsky said that it was primarily due to the investments in India. “We launched Prime there (India) a year ago, if you remember, and we’ve had more Prime members join in India than in any other country in the first 12 months. We have free shipping on 10 million items there and we’re continuing to add benefits – Prime Video, Amazon Family.”

He also mentioned that they’re expanding both Prime Music and Amazon Business in India. “So, a lot of positive momentum and investment going on in India, very pleased with that. We also recently announced Echo and Alexa are available in India.”

Currently, Amazon’s total investment commitment in India stands at $5 billion: the $3 billion announced in June 2016, plus the $2 billion investment announced back in July 2014, which the company has already completed in phases over the past two years. It has also been investing heavily in its logistics and payments services as well.

Besides India and Souq.com, which Amazon also acquired in this quarter in UAE, continued investments in Prime benefits, Prime Now and Amazon Fresh are some of the other reasons for losses. “In Q4 of last year, we launched Prime Video in over 200 countries globally, continue to build up not only the offerings, but also the engagement that we see from those Prime customers… We’re also doing the basic blocking, tackling of adding selection, especially Fulfilled By Amazon selection, increasing free shipping offers and also speed of shipping offers. So, there’s a lot of different influences there.”

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Note that this is the first year Amazon offered its Prime Day deals in India.

In a recent interview, Amazon India head Amit Agarwal provided some data regarding sales during the recently concluded festive season:

  • 99.7% of India’s pin codes placed at least one order on Amazon.in
  • 86% of new customers on Amazon are coming from smaller towns
  • Customers from 350 cities in India signed up for Amazon Prime during this period

Subscription service

Amazon’s subscription services posted a 59.3% YoY growth to $2441 million for the quarter, from $1532 million in Q3 2016. This includes the revenue generated from membership fee for Amazon Prime, plus “subscription services for digital music, digital video, audiobooks, e-books.”

“The growth in Prime has been fairly consistent over the last recent quarters in Prime memberships, and as I said, we had the largest new sign-ups on Prime Day for the Prime program. The monthly program is gaining traction and is an attractive option for a lot of people. And again, on the other subscription services, music especially, it works just so well with our Echo device that we’re seeing a lot of growth in that area as we increase the number of Echo devices and customers using the Echo devices,” said Olsavsky.


Amazon is going to continue investing in video (i.e., original content), and further increase investments in 2018. “And why are we going to do that? It’s because the video business is having great results with our most important customer base, which is our Prime customers. It continues to drive better conversion of free trials, higher membership renewal rates for existing subscribers and higher overall engagement. We’re seeing the engagement go up year-after-year in video and also music and a lot of the other Prime benefits. We also know Prime members who watch video also spend more on Amazon,” explained Olsavsky.

What’s really interesting is that Amazon follows the viewing patterns of Prime members and co-relates that to their buying patterns, and based on that takes calls on which shows or rather which type of content they would be investing on. “So, that’ll always be an important part of our Prime offer, and we’ll continue to use the data that we have to make better decisions about where to invest our dollars in Prime Video,” added Olsavsky.

[Side note: While this seems to be Amazon’s preferred approach, it is a bit odd. I’m a big fan of Bosch, an Amazon original series, and I’m eagerly waiting for the fourth season to release. However, I doubt if my love for Bosch had any impact whatsoever on what I purchase on Amazon India. In fact, my last purchase was a Caprese handbag for my sister during the festive season. How do they co-relate that?]

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On a more serious note, Amazon said quite clearly that they have no plans of introducing an ad-supported version of Prime Video.

Note that in Q3 2017:

Amazon Studios closed deals with The Walking Dead creator Robert Kirkman and Gilmore Girls creators Amy Sherman-Palladino and Daniel Palladino, and greenlit a comedy series starring Fred Armisen and Maya Rudolph, as well as the drama series Tong Wars from Paul Attanasio and Wong Kar-wai. Amazon Studios also announced development on Underground Railroad with Barry Jenkins; The Boys with Seth Rogenand Evan Goldberg; Snow Crash from the novel by Neal Stephenson; Lazarus, based on a comic book by Greg Rucka; and Ringworld, based on Larry Niven’s sci-fi book series.

In India, Amazon Prime Video has already released three original India-specific web series – Inside EdgeGoing Viral and Laakhon Mein Ek. It also released stand-up specials by 14 Indian stand-up comedians.

Whole Foods Market

The Whole Foods Market was obviously a major investment for Amazon in this quarter. And now Amazon is slowly integrating a number of its services with it, including plans for making Amazon Prime the customer reward program for Whole Foods. They recently added Amazon Locker, which is a self-service parcel delivery service, to a few Whole Foods stores. “I think over time, you’ll see more cooperation and working together between AmazonFresh, Prime Now, and Whole Foods as we can explore different ways to serve the customer. And we think we’ll be also developing new store formats and everything else just as we talked about in the past before Whole Foods. Amazon Books stores, Amazon Go, and the opportunity that that technology presents,” said Olsavsky.


“On Brazil, just briefly, yeah we did recently expand and add an electronics category there in Brazil. It’s a third-party marketplace offering. You may recall we’ve been in Brazil for a number of years now, initially launched with really a Kindle and e-books offering without the sort of physical categories and, more recently, added physical books again, a third-party marketplace offering. So, I think, we’re excited about the electronics getting out there. There is a wide variety of products included in that category: smartphones, tablets, cameras, TVs, what have you. So, I think, we’re really excited to get that technology out there for Brazilians. And I think beyond that, we really just focus on those categories and growing selection there, but I can’t speculate on what we might do in the future there,” said Dave Fildes, director of Investor Relations at Amazon.

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