amazon-q1-2020-operating-income-holds-thanks-to-aws

Amazon Q1 2020 Operating Income Holds Thanks To AWS

  • As key metric Amazon tracks to assess the health of its business model is the operating income (or loss) as a more meaningful measure than gross profit and gross margin as it helps to assess the overall profitability of the business based on its operational efficiency.
  • Operating income decreased from $4.4 billion in Q1 2019 to $4.0 billion in Q1 2020.
  • Amazon breaks down its operating income for all the revenue segments (except for AWS) in tow primary geographies: North America and International.
  • AWS is considered as a separate business unit with its own operating income center.
  • The decrease in North America was primarily due to increased shipping and fulfillment costs and a product mix shift, partially offset by increased unit sales, including sales by third-party sellers, and advertising sales.
  • Amazon expects this effect to last for at least for Q2 2020, due to COVID-19 related increases to fulfillment costs and cost of sales. In addition to investments in employee hiring, pay, and benefits as well as shipping costs.
  • The increase in International operating loss was primarily due to increased shipping and fulfillment costs and marketing expenses, partially offset by increased unit sales, including sales by third-party sellers, and advertising sales.
  • The increase in AWS operating income was primarily due to increased customer usage and cost structure productivity, including a reduction in depreciation and amortization expense from the change in the estimated useful life of AWS servers and additional investments to support the business growth, pricing changes, increased spending on technology infrastructure.

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Gennaro Cuofano

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