Exclusive update by Joe Magyer
Amazon reported a third-quarter operating loss on Thursday, which was expected. Amazon had guided to an operating loss from $50 million to $350 million during the quarter, so the operating loss of $28 million was actually better than expected. Net sales rose 27% to $13.8 billion, or 30% and $14.2 billion when you adjust for currency swings, which was above analysts' estimates and near the top of their guidance range. For context, U.S. e-commerce at-large, as measured by the Census Bureau, grew 15% in the second quarter.
Breaking down the segments, product sales rose 23% overall while services – aka Amazon Web Services and advertising – rose 51%. With service at only 4% of sales, though, you shouldn't let your imagination run away just yet. Drilling into products, the three hottest items by volume on Amazon were all Kindles, followed by book 3 of 50 Shades of Grey. I'll skip the joke there for all our sakes. Big picture, though, I'm happy to see Kindle sales are hot and getting strong reviews heading into the holiday season.
Global paid unit growth was 39% this quarter, which is strong, and the slice of paid units from third-party sellers has climbed from 34% two years ago to 41% this quarter. That's lovely because Amazon takes home higher margins on third-party sales than if it takes ownership of the goods themselves. The one-two punch of higher third-party sales and growth from the higher margin AWS and advertising lines helped push gross margin up to 25.3% this quarter, which scorches the 23.5% mark from a year ago.
Let's count heads. Amazon noted the active customer count has risen to 188 million. That's up 4.4% sequentially and 23.7% year over year, which makes PayPal's 14% year-over-year user growth look paltry. I also like seeing revenue growth outpacing customer growth. Amazon will be better able to serve those customers with the 19 new fulfillment centers it will have open for this holiday season.
Amazon's new distribution centers are cutting the time it takes for customers to receive their orders. Anecdotally, some customers in major urban areas are starting to receive Amazon orders as quickly as the same day. That closeness is big for Amazon not only because it reduces wait times for customers, which is one of the primary trade-offs of online shopping, but should also lower Amazon's shipping bills and fulfillment costs over the long haul.
All in all, this was another solid quarter from Amazon and the future keeps getting brighter. The stock is a buy.
