E-comm giant posts $15 billion profit

Amazon impressed Wall Street with a significant increase in profits, providing another sign that cost cuts across its fulfillment and delivery network are paying off in a big way.

Net sales rose 11 percent to $158.9 billion in the third quarter, compared to $143.1 billion in the year-ago period. The revenue figures were slightly above the $157.2 billion expected by analysts surveyed by LSEG.

Third-quarter net income rose to $15.3 billion, or $1.43 per diluted share, well above the forecast of $1.14. Third-quarter 2023 profit was $9.9 billion, or 94 cents per diluted share.

Two of the tech titan's enduring cash cows – Amazon Web Services and its advertising segment – each grew 19 percent to $27.5 billion and $14.3 billion, respectively.

CEO Andy Jassy updated investors on the progress of Amazon's regionalization initiative across its logistics network to get more items to end consumers – and reduce costs in the process.

Jassy said the company has opened more than 15 inbound fulfillment centers in recent months. These warehouses are where Amazon receives products from manufacturers and sellers before shipping them to other fulfillment centers.

“Although we are still relatively early in this new architecture, we have already improved our ability to distribute inventory across our fulfillment centers by 25 percent compared to last year,” Jassy said. “This allows us to have more needed items in fulfillment centers close to the customer, allowing us to assemble and ship shipments to customers even faster.”

Amazon has made “hundreds” of changes to its U.S. inbound network in recent months and said the company expects these changes to further improve inventory placement, provide faster delivery times, save on transportation costs and increase the number of units shipped per case become.

Cutting costs at Amazon is a top priority for Jassy and Co. since the beginning of 2023.

The e-commerce giant's fulfillment costs totaled $696 million in the third quarter, down 5 percent from $732 million a year ago.

And although global shipping costs rose 8 percent to $23.5 billion, that's still less than the 12 percent year-over-year increase in paid units shipped, indicating falling costs per shipment.

The cuts will allow the Big Tech company to offer more items to shoppers who want to bargain more cheaply. Jassy said in an August earnings call that consumers were exhibiting more cautious spending habits.

“It's pretty easy to choose to deliver (items with lower average selling prices), but it's much harder to afford to deliver them economically,” Jassy said. “One of the reasons we've been so crazy focused on deployment costs over the last few years is because the fact that we can reduce our deployment costs just opens the door for more items, particularly lower ASP items that we can can deliver economically.”

The comment came days after a report suggested Amazon was looking to launch a low-cost online store offering Chinese-made goods that would compete directly with Temu.

Amazon CFO Brian Olsavsky emphasized the value that the lower ASP products bring to the online marketplace.

“You have to have fast delivery to sell these products to customers,” Olsavsky said. “Doing this will result in closer customer relationships, higher orders and larger basket builds, which will benefit our shipping economics. Reorders are stronger.”

Amazon said same-day deliveries increased more than 25 percent year-over-year, with 40 million customers using the service. The company announced in July that it was offering same-day delivery in 120 metro areas across the United States. According to supply chain consultancy MWPVL International, 53 sub-same-day delivery centers were active in the first quarter, with Jassy saying in the call that the tech giant will continue to introduce more of these facilities.

Elsewhere in the Amazon logistics network, Jassy highlighted the opening of Amazon's $200 million robotics fulfillment center in Shreveport, La. what he says is the first facility to incorporate the company's latest robotics inventions that simplify stowing, picking, packing and shipping processes.

So far, this new design reduces fulfillment time by up to 25 percent, increases the number of items offered for same-day or next-day delivery, and is expected to result in a 25 percent improvement in delivery costs during peak seasons.

Without going into detail, Jassy said AI will be a “big part” of Amazon's robotics strategy and credited the company's recent hiring of employees from an “incredibly strong robotics AI organization.”

In September, Amazon hired three of Covariant's founders as well as several engineers and researchers from the team. Covariant develops artificial intelligence software for warehouse robots.

As part of the agreement, Amazon will also license Covariant's core AI models.

For the fourth quarter, Amazon expects net sales of between 181.5 and 188.5 billion US dollars, which would correspond to growth of between 7 and 11 percent compared to the same quarter last year.

Operating income is expected to be between $16 billion and $20 billion, compared to $13.2 billion in the fourth quarter of 2023.