For an analysis of the results in North America click here
Amazon never ceases to impress us analysts. They’re one of the most interesting and vibrant business to study. After a record breaking holiday season, Amazon posted a massive 43% growth to USD51 Billion, its biggest growth quarter of the last seven years!
The biggest news came from Amazon’s operating income statement, with a 92% increase up to USD1.9 billion, Amazon’s biggest profit in a quarter ever. While the numbers are outstanding, it is worth considering the decrease in Free cash flow, signalling a small change of direction from Amazon in terms of the key metrics, and the influence of recently acquired Whole Foods adding over USD4 Billion to top-line revenue during period.
Closer look at Amazon’s impressive International results
During Q1, International sales grew 34% to USD14.9 Billion. However, Amazon’s investment to sustain this run rate, has resulted in losses rising to USD622, up from USD 481 in Q1 2017.
Source: Amazon Webcast Results presentation.
The investment in infrastructure in Europe and India, the launch in Australia, Brazil and Singapore, are taking a toll on Amazon’s profit numbers. However, with Amazon more engrained in consumer routines in all the countries where it operates, it is becoming the leading online player in most of them. Further investment is likely to reap long-term benefits, and fend off rivals such as Alibaba.
Amazon unveiled that it currently has over 100 million paid Prime members around the world: more new paid members joining prime in 2017 than any previous year. After the holiday season, Amazon’s recruiting period, the Q1 results are a strong signal of the success adding new members, especially in countries like India, or through the launch of Prime in the Netherlands and Luxembourg last year.
International sales account for a 30% of Amazon’s total net sales, still half of what the North America business. It is impressive how Amazon is maintaining the strong growth rates in its mature North America market. Growth in Canada, and Amazon’s cross-border efforts through global shipping - accounted for in North America balance sheet, boosted performance.
What we can expect next
Amazon is already investing to fuel international growth. In developing your Amazon strategies, here are a few things to be mindful of:
- Amazon will drive more frequency through grocery. 2018 will see Amazon scaling grocery in Europe: expect a rising focus on natural/organic and wellness products across Prime’s grocery banners. Amazon is toying with its Fresh membership, and we can expect some consolidation of this service with Prime Now. In India Amazon is strengthening its supply chain ability to deliver grocery items through new bespoke warehouses.
- Alexa’s global expansion is far from over. As more shoppers get used to voice technology, the adoption of the device will continue growing at a fast pace. By the end of 2018, we believe Alexa will be available in all of Amazon’s main existing marketplaces. This will dramatically change the game in the coming years, changing users’ habits when interacting with technology. With this growth, Amazon will also find ways to monetize voice.
- Amazon is looking to add a new marketplace to its existing global portfolio, with rumours of a possible expansion into Turkey. What is certain is it will double down in Australia, invest in Singapore, and continue its rollout in Brazil to try to gain market share from Mercado Libre.
- Advertising, reported under Amazon’s “other” business, which primary accounts for sales of advertising services, grew to USD2 billion, a 139% growth from a year ago. Amazon’s sees advertising as “a bright spot both from a product standpoint, and a financial one”. As its international marketplaces mature, the addition of Amazon’s marketing and advertising services will drive growth while offering wider margins that its retail unit.
Amazon is expanding to new countries and verticals at unprecedented speed, forcing manufacturers and retailers to react almost overnight. While Amazon uses a different playbook for each country, we encourage businesses to share their international experience and get their business ready for Amazon worldwide.
Going forward, with Amazon’s announced rise of Prime membership fees in the US, it could be an indication of what will follow internationally.
Amazon’s guidance for Q2 2018 expects a net sales growth between 34% and 421% with operating income in the USD1.1 Billion to USD1.9 billion range. Considering Amazon’s existing momentum and the broad range of growth initiatives taking place internationally, we have no doubt of their ability to accomplish such results.
If you or your organization works with Amazon, and you want to learn more about how to prepare for this and how to win with this unique retailer, you can join us on the eCommerce Conference & Amazon Planning Workshop taking place the 16th and 17th of May in Amsterdam.