4 Takeaways from Netrush’s Debriefing on Amazon’s Q1 Results

Earlier this week, Netrush hosted a live debriefing on Amazon’s latest quarterly results, which were released last Thursday (April 27) and showed notable increases versus the same quarter last year in two key areas: net sales (up 9%) and operating income (up 30%).

The debriefing included Netrush employees as well as Brandrunners—or, members of the Netrush Brandrunner community, which comprises ecommerce leaders inside branded manufacturer organizations.

What can be gleaned from Amazon’s reported upticks in sales and profit? How does the Amazon marketplace factor into the state of the business? And what does it all mean for brands selling on Amazon?

Those were among the questions the debriefing’s moderator—Netrush Senior Director of Research, Insights & Education Claire McBride—posed to the group. Here are the biggest takeaways the conversation produced.

1 - Net Sales and Operating Income Beat Guidance

Nine percent net sales growth surpassed Amazon’s expectations of 4-8%, and operating income came in at $4.8 billion, representing a 30% increase year-over-year and well ahead of the forecasted $0 to $4 billion.

Such a fact would seem to indicate a positive quarter for Amazon, especially compared to last quarter, “which generated some negative sentiment across the ecommerce industry and in the investor ecosystem,” McBride said. But how was the company able to do it?

In terms of profit, management pointed to easing headwinds, such as inflationary pressures in fuel, line haul shipping rates, and electricity. Amazon is also actively pulling nearly every profitability lever it has, including multiple rounds of layoffs and improving productivity in its fulfillment network.

Brandrunners on the debriefing shared how they are feeling some of Amazon’s profitability moves, such as leaner inventory management and improved payment cycles for Amazon.

2 - amazon’s Retail Business Is COMING BACK

By looking at Gross Merchandise Value (or GMV), McBride isolated Amazon’s core retail business, which experienced an estimated growth rate in the mid-teens for the North American business. That’s a marked improvement over the slump the retail business experienced last year. But it’s still well below pre-pandemic levels.

Much of this is driven by the macroeconomic environment, with Amazon management noting consumer pullback in discretionary spending and sustained high demand for everyday essentials such as consumables and beauty products (although consumers are trading down to lower-priced items in those categories).

Attendees of the debriefing confirmed those broader trends, with health-related CPG brands expressing strong growth on Amazon, and those competing in more discretionary categories reporting more of a mixed bag. All in all, most brands are still seeing Amazon as a bright spot in the overall retail business, even if growth rates have come down.

“It’s also worth noting that historically high growth rates are naturally harder to keep up given the sheer size of Amazon’s retail business today,” McBride added.

Indeed, adding an estimated $150 billion in North American GMV during the pandemic alone (2020 and 2021) could make returning to the 20%-plus growth rates Amazon achieved when the business was much smaller unrealistic.

3 - Continued Margin Recovery Is Expected for Q2

This can be deduced from the projected numbers as well as management’s commentary. Amazon guided between $2 billion and $5.5 billion in operating income for Q2 compared to $3.3 billion for the same quarter last year. Given its net sales guidance of 5-10% growth, this implies a 2.9% operating margin at the mid-point compared to 4-6% pre-pandemic.

Management noted the company is working towards getting back to pre-pandemic levels but admitted that it will take at least a few quarters to get there. Thus, brands should expect the business pressures experienced in Q1—such as increased FBA fees, Amazon purchasing lower weeks of cover, and profitability-focused vendor negotiations—to continue into Q2 and beyond.

4 - Amazon Is Moving to a Regional FULFILLMENT Model

Management announced its fulfillment network strategy has shifted to operate as eight standalone but interconnected geographic regions, with lower delivery costs and faster delivery times as key benefits. During the Covid years, Amazon doubled the size of both its fulfillment network and transportation network, the latter of which is now about the size of UPS.

But with consumer demand slowing since the pandemic ended, Amazon is sending the message that it is putting the brakes on building and instead focusing on efficiency, with the regional centers possessing enough product to run self-sufficiently while also having the ability to ship nationally if needed. Amazon is bullish on the results so far, which prompted its CEO, Andy Jassy, to say during the earnings call that the company expects to have “our fastest Prime delivery speeds ever in 2023.”

Who stands to benefit in addition to Amazon? Consumers who appreciate receiving their items quickly, for sure. But regional delivery services as well, one debriefing participant predicted.

“(Amazon has) already gotten rid of FedEx delivering the last mile,” the participant said. “So, now it’s about getting regional carriers that can bring a lower price point and improve Amazon’s margins. That’s their game.”

The takeaways above are simply snippets from the Amazon Q1 2023 Recap that Netrush provided members of its free, private LinkedIn community of ecommerce leaders—the Brandrunner Forum. Join the group for the full PDF recap and the chance to attend live debriefings of Amazon’s future quarterly results as well as other exclusive events.