Even though Amazon’s Prime Day in the US was postponed to October instead of the usual July, Amazon.com Inc. tripled its net income, clocking in $6.3 billion in Q3FY20 compared to $2.1 billion in the same quarter last year. Net sales stood at $96.1 billion, up 37% from $69.9 billion in the same period last year. 

It’s hard to predict how much of the incremental sales from COVID-19 would recur and continue to grow next year, Brian Olsavsky, CFO and senior VP, said on the investor call. There have been phases of growth. For instance, there was a lot of stocking up of groceries and other household supplies, followed by sales of gloves and disinfectant wipes and masks. This may be a bubble and similar sales may not take place next year, he said.  

“But Prime’s renewal rates and engagement are going up. So people are buying more frequently and across more categories. They’re using more of our digital benefits. We like the trends on kind of connectedness to our Prime program and we think that will have lasting value.” — Brian Olsavsky, Amazon 

In India, Amazon opened 10 new fulfillment centres, 5 new “sort centres”, nearly 200 delivery stations, and over 10,000 seasonal jobs to meet demand during the festive season. Amazon’s Project Zero, a tool to remove counterfeit products, is now available in 17 countries around the world, with Australia, Brazil, the Netherlands, Saudi Arabia, Singapore, Turkey, and the UAE being recently added. It’s a significant expansion given the emphasis on stopping sales of counterfeit goods on e-commerce platforms in different jurisdictions across the world, including the US, EU, and India.

Role of third party sellers

Of the total $94 billion in net sales, $20.4 billion came in from third-party sellers, an increase of 54.6% YoY. $48.3 million came from online stores. This includes commissions and any related fulfillment and shipping fees, and “other third-party seller services”, Amazon said. This is a significant increase, especially given that Amazon is facing antitrust investigations in multiple jurisdictions over its treatment of third-party sellers.

In its list of market risks disclosures in its 10Q filing to the SEC, Amazon said that it provides “certain marketing tools and logistics services to third-party sellers to enable them to sell online and deliver to customers”. In addition, it holds “indirect minority interests in entities that are third-party sellers on the www.amazon.in marketplace”. These are in place specifically in response to the Indian government’s FDI restrictions on multi-brand retail trade.

“Although we believe these structures and activities comply with existing laws, they involve unique risks, and the PRC [People’s Republic of China] and India may from time to time consider and implement additional changes in their regulatory, licensing, or other requirements that could impact these structures and activities. There are substantial uncertainties regarding the interpretation of PRC and Indian laws and regulations, and it is possible that these governments will ultimately take a view contrary to ours.” — Amazon’s regulatory filing (emphases ours)

Prime renewal rates go up, Prime Video content helps in free trial conversions

Amazon has over 150 million Prime members globally and launched the scheme in its 20th country, Turkey, during the quarter. During the two-day Prime Day in India, twice as many customers became Prime members compared to the previous year but the company did not give any absolute numbers about it. Internationally (meaning outside North America), the number of Prime members who stream Prime video grew by more than 80% YoY, and international customers more than doubled the hours of content watched over last year. Prime member renewal rates improved in Q3 year-over-year.

Amazon has been producing US content that streams globally, along with local originals in each region. This is bringing in “a very significant acquisition channel from new Prime members especially in many smaller countries around the world. We see higher free trial conversion rates. Higher membership renewable rates and then higher overall engagement as I mentioned in Q3 specifically. And when they do that, when the more engaged they are, we know that, that turns into more sales on Amazon and it’s a self-reinforcing loop”, David Fildes, head of investor relations said on the call. Amazon is developing localised content is developing in India, Brazil, Mexico, Australia, UK and Spain. 

Amazon also launched Prime Gaming during the quarter, it lets Prime members content for PCs, console, and mobile games, plus a collection of PC games every month. 

Amazon Web Services grew 28.9% YoY

Net sales of AWS grew 28.9% YoY to $11.6 million, compared to $8.9 million in Q3FY19. Customers have accelerated plans to move to the cloud, but there are anomalies in different industries, Olsavsky said. Travel and hospitality are down but video conferencing, gaming, remote learning, entertainment related customers are active. But nevertheless companies are looking for ways to cut down on expenses, and moving to cloud is a good way to cut down on expenses long-term. 

“To trying to cut down on their short-term costs in the cloud, by tuning their workloads and we’re helping them do that and doing the best we can to help them save short-term dollars and again tune their usage again some of our benchmark. We think that is good for the customer and therefore, it will be good for us long-term.” — Brian Olsavsky, Amazon

Companies have extended their contracts and backlog of multi-year deals has gone up. Amazon added biotechnology company Moderna as an AWS client, to accelerate the development of messenger RNA medicines to prevent and fight diseases, including a vaccine candidate against COVID-19.

100 million FireTV devices sold

Amazon has sold 100 million FireTV devices globally, with billions of hours of content being streamed. The company said it has introduced new privacy controls on Alexa, letting users opt out to saving voice recordings and delete their history. Over 100 million smart home devices have now been connected to Alexa.  

Amazon also plans to invest $10 billion in Project Kuiper, a low earth orbit satellite constellation that aims to provide broadband to poor people. The FCC had approved the project in July.

$1 billion saved in travel expenses

Amazon saved $1 billion in travel in this financial year. Q3 expenses stood at $2.5 billion. The majority of that is due to the expansion of our operations, with drags due to hiring, extending break periods, more direct cost around cleaning and supplies, testing. Expenses are likely to be close to $4 billion in the next quarter. The company incurred over $7.5 billion in incremental COVID-related costs in the first three quarters of 2020.

Financial Snapshot

  • Net Income: $6.3 billion, up by 197% YoY from $2.1 billion
  • Net Sales: $96.1 billion, up by 37% YoY from $69.9 billion
    • North America: $59.3 billion, up 39% YoY from $42.6 billion
    • International: $25.1 billion, up 37% YoY from $18.3 billion
    • AWS: $11.6 billion, up 28.9% YoY from $8.9 billion
  • Operating Income: $6.1 billion, up 96% YoY from $3.1 billion

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Earnings Call Transcript | Press Release | SEC 10Q filing