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?
The Amazon business model is comprised of the following revenue streams:
- 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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