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How is Amazon Performing in India?

Posted on Monday, Oct 29th 2018

Amazon (NASDAQ: AMZN) reported a mixed third quarter last week. For the second straight quarter, it missed estimates of revenue while earnings estimates blew past estimates. International sales have also seen a slowdown due to late onset of Diwali this year. This was the fourth straight quarter of profit above $1 billion, but the volatile market has been unforgiving.

Amazon’s Financials

Amazon’s third quarter revenues grew 29% to $56.6 billion, missing the market’s expectations of $57.10 billion. Net income increased over 11 times to $2.9 billion or $5.75 per share from $256 million or $.52 per share a year ago, blowing past analyst expectations of $3.14.

Operating income increased to $3.7 billion, compared with $347 million a year ago. The company ended the quarter with cash balance of $21 billion. Its workforce increased 51% y-o-y to a record-high 613,300 employees.

By segment, net product sales increased 17% to $33.7 billion and net service sales increased 52% to $22.8 billion.

AWS revenues grew 46% over the year to $6.68 billion, missing estimates of $6.71 billion. AWS generated operating income of $2.1 billion.

Revenue from subscription services like Prime increased 52% to $3.7 billion. Revenue from online stores grew 10% to $29.1 billion while revenue from physical stores, chiefly from its stores from the Whole Foods acquisition, was $4.3 billion. Revenue from third party seller services including commission, fulfillment, and shipping fees grew 31% to $10.4 billion.

Other revenue mainly from advertising grew 122% to $2.5 billion. Despite the astronomical increase, Amazon still has a long way to go before it catches up with advertising leaders Google and Facebook. Alphabet recently reported a 20.3% increase in its Q3 advertising revenues to $28.95 billion.

Amazon’s international sales grew 13% to $15.5 billion, compared to a y-o-y growth rate of 29% a year ago. However, losses narrowed from $936 million to $385 million while North America reported operating income of $2.03 billion, up 1700%.

For the fourth quarter, Amazon expects sales to grow 10%-20% to $66.5-$72.5 billion versus analyst estimate of $73.79 billion. Operating income for the quarter is expected to be $2.1-$3.6 billion versus analyst estimates of $3.9 billion.

Amazon’s Expansion

Amazon expanded grocery delivery from Whole Foods Market through Prime Now to over 60 US cities. It also launched grocery pickup from Whole Foods Market that allows Prime Now customers to pick up their groceries within 30 minutes. The service is currently available in over 10 US cities.

Amazon opened five new checkout-free Amazon Go stores in Seattle, Chicago, and San Francisco. The company also launched Amazon 4-star in New York City, a physical store with top seller or trending products that are rated 4 stars and above on Amazon.com.

During the quarter, Amazon also introduced Amazon Storefronts in the US, Germany, and the UK. Storefronts is a platform where small and medium-sized businesses can sell directly on Amazon. Amazon launched its site for Turkey, with millions of products from over 1,000 local sellers. In India, it launched its website in Hindi.

Amazon Business is now generating $10 billion in annualized sales, serving hundreds of thousands of business sellers and millions of customers across eight countries. Amazon Business launched new Business Prime benefits in the US, Germany, and Japan including Spend Visibility and Guided Buying features.

Amazon in India

During the earnings call, Amazon attributed the slowdown in international sales to the fact that Diwali festival would be celebrated this year in November as against October last year. Diwali is preceeded by an online sale where it battles it out with Flipkart, which was acquired by Walmart for $16 billion earlier this year. This year, Flipkart’s Big Billion Days Sale was held from October 10-15 while the Amazon Great Indian Festival Sale lasted a day longer.

According to a RedSeer Consulting market research report, online retail jumped over 60% to $2.3 billion during the sale with Flipkart’s share at 62% and Amazon’s at 38%. However, Amazon disputed the report saying that its gross sales nearly doubled this year driven by strong smartphone sales, Prime membership sign-ups surged almost 3x, and orders were recorded from 99% of the PIN codes in India. New customer signups grew 60% with 82% of its new customers coming from lower tier cities. Flipkart, on the other hand, reported an 80% growth in the sale.

According to an earlier RedSeer report, Flipkart, had a 46% share of the overall Indian e-commerce market while Amazon had a 30% share. With the recent sale, Amazon is estimated to have closed the gap. A prime factor for Amazon’s success is its Prime membership program. According to RedSeer, about 35% of Amazon’s orders are coming from Prime members who pay INR 999 ($15) annually or INR 129 ($2) monthly. Further, about 22% of the Prime members have not shopped on other platforms after subscribing to the service.

Overall, it is a fiercely contested battle with both of them spending an estimated INR 400 crore ($55 million) on advertising during the sale season. Which way do you, as a user, find yourself leaning? How do you view Amazon’s performance in the Indian market?

The overall market was volatile this week with rising concerns over slowing economy and rising interest rates. With a revenue miss and weak outlook, even Amazon was not spared. It touched a record high of $2050.50 in September and crossed $1 trillion in market cap but its stock is currently trading at $1642.81 with market cap tumbling down to $801.27 billion. Its 52-week low is $968.55.

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