In Q1 2020, Amazon‘s net sales increased by 26.3%. Yet its operating income decreased by 9.7% primarily due to a higher cost of sales (30% increase), incurred by Amazon due to the COVID, due to increased shipping and fulfillment costs and marketing expenses.
What are the key Amazon revenue streams as of Q1 2020?
- Online stores include product sales and digital media content where Amazon records revenue gross.
- Physical stores Include product sales, where customers physically select items in a store.
- Third-party sellers Include commissions and any related fulfillment and shipping fees, and other third-party seller services.
- Subscription services Include annual and monthly fees associated with Amazon Prime memberships, as well as audiobook, digital video, digital music, e-book, and other non-AWS subscription services.
- Other revenues primarily include sales of advertising services, as well as sales related to our other service offerings.
Why did Amazon spend more?
- Due to increased product and shipping costs resulting from increased sales.
- Amazon projects the increase in costs through at least Q2 2020 due to COVID-19 related increases in shipping costs.
- Shipping costs, which include sortation and delivery centers and transportation costs, were $7.3 billion and $10.9 billion in Q1 2019 vs Q1 2020.
- Amazon expects the cost of shipping to continue to increase to the extent as customers accept and use shipping offers at an increasing rate, and Amazon further reduces shipping rates.
- Amazon offers more expensive shipping methods, including faster delivery, and additional services.
- Costs of shipping over time might be offset in part by achieving higher sales volumes, optimizing fulfillment network, negotiating better terms with suppliers, and achieving better-operating efficiencies.
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