Amazon Posts Record Profit in Q1 of $3.6 Billion, Plans to Upgrade Prime to Free One-Day Shipping
Amazon.com handily beat Wall Street estimates for profit for the first quarter of 2019 — reporting $3.6 billion net income, more than twice the year-ago period and an all-time quarterly record for the ecommerce behemoth. In addition, the company revealed that it’s undertaking a shift in its Prime free-shipping program to deliver orders in one day instead of the standard two-day offer currently.
In the second quarter, Amazon expects to spend $800 million on upgrades related to moving the Prime free-shipping program from two days to one, CFO Brian Olsavsky said on the earnings call. He noted that Amazon has already provided free one-day — and even same-day — shipping for a selection of products in the past, but the new Prime program will be focused on making one-day shipping standard.
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“By moving to one day [shipping], we increase the convenience and selection,” Olsavsky said. “We really think it’s going to be groundbreaking for Prime customers, and we’re very excited to add this capability.”
The free one-day shipping will be rolling out to Prime markets worldwide, according to Olsavsky. In the U.S., Amazon Prime membership costs $119 per year or $12.99 per month.
In Q1, Amazon’s sales increased 17% to $59.7 billion, with net profit more than doubling in the first quarter to deliver earnings of $7.09 per diluted share. Analyst consensus estimates were for revenue of $59.65 billion and EPS of $4.72. The company’s guidance for Q1 was for net sales of between $56 billion and $60 billion (below analysts’ prior estimates of $60.8 billion).
Amazon’s AWS cloud division again thundered to impressive growth, with revenue up 41% to $7.70 billion (in line with Wall Street estimates). Revenue in the company’s “Other” segment — which primarily comprises ad sales — rose 34% year-over-year, to $2.72 billion. Amazon’s subscription services grew 40%, to $4.34 billion; that category includes fees associated with Amazon Prime, as well as audiobook, digital video, e-book, digital music, and other non-AWS subscription services.
As it gets bigger, Amazon’s growth it slowing down. For Q2, the company expects sales of $59.5 billion-$63.5 billion (up 13%-20% year-over-year). Operating income is expected to be between $2.6 billion-$3.6 billion (versus $3.0 billion in Q2 2018), which factors in spending to upgrade Amazon’s Prime free-shipping program from two days to one.
Among other points the company called out in its earnings release, Amazon noted that its Fire TV line of connected devices now has more than 30 million active users, as previously announced.
The company also called out its cease-fire with Google in their fight over video-streaming apps. The two companies over the next few months planning to launch an official YouTube app on Amazon Fire TV devices and Fire TV Edition smart TVs, as well as the Prime Video app for streaming to Chromecast and Chromecast built-in devices. Prime Video will also be broadly available across Android TV device partners, and the YouTube TV and YouTube Kids apps will also come to Fire TV later this year.
During Q1, Amazon Studios greenlit more than 20 new and returning local original series, including “La Templanza” in Spain, “Wir Kinder vom Bahnhof Zoo” in Germany, “Bandish Bandits” in India, “El Presidente in Mexico,” and “The Bachelorette” in Japan.
On the Prime Video front, the service debuted original series “Hanna,” billed as a thriller/coming-of-age drama, based on the 2011 film, and announced the series was picked up for season two. Additionally, the film “Guava Island” starring Donald Glover and Rihanna launched on Prime Video after it premiered at Coachella.
Last fall, Amazon announced its “HQ2” plans for a second base of operations in North America would be split between Queens in New York City and the Crystal City neighborhood in Arlington, Va., just south of Washington, D.C. But the company nixed plans for the NYC outpost after encountering political opposition, particularly over the more than $2 billion in tax incentives it was set to receive.
Separately, earlier this month Amazon CEO and founder Jeff Bezos reached final terms on his divorce from his wife, MacKenzie, under which Jeff is retaining 75% of the couple’s Amazon shares as well as full voting control of 100% of the stake. MacKenzie Bezos will own shares representing about 4% of Amazon’s outstanding common stock, meaning Jeff Bezos will retain a 12% stake — and keeping his status as the world’s wealthiest individual.
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