Please ensure Javascript is enabled for purposes of website accessibility, Inc. Management Talks Physical Stores, Prime Day, and Whole Foods

By Daniel Sparks - Oct 27, 2017 at 6:03PM

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Here are the most interesting excerpts from Amazon's third-quarter earnings call. (AMZN -1.13%) is firing on all cylinders. The company's third-quarter earnings report blew investors away, sending shares soaring as much as 13.6% on Friday. But there's more to the story than the big numbers in Amazon's earnings report. Amazon's third-quarter earnings call was packed with useful insight for shareholders, including discussion of Amazon's new "physical stores" revenue segment, management's plans for Whole Foods, and how Prime Day gave the quarter a boost.

Amazon's new "physical stores" revenue segment

Any investors looking over Amazon's financial statements may have noticed a revenue segment called "physical stores." Including sales from Amazon's acquisition of Whole Foods during the quarter, the new segment added $1.3 billion to the company's top line.

Person grabbing a drink at an Amazon Go checkout-free store

Amazon Go checkout-free experience. Image source:

But there's more to this segment than representing a way for Amazon to report Whole Foods sales to investors; it also signifies Amazon's growing ambitions to launch its own physical stores.

"[T]hat class of revenue, physical stores revenue is going to be where we are going to book any sales that where a customer physically select[s] an item in a store," CFO Brian Olsavsky explained (via an S&P Global Market Intelligence transcript). "So it also -- it does include our Amazon Books."

Olsavsky also noted that this revenue classification of physical stores comes as the company wants to continue developing new store formats and trying new technologies like its cashier-less checkout, Amazon Go.

And we think we'll also be developing new store formats and everything else just as we've talked about in the past with before Whole Foods, [A]mazon Bookstores, Amazon Go and the opportunity that technology presents. ... So we're experimenting with a lot of formats.

Prime Day was a big hit

When asked about what the key driver was behind Amazon's higher-than-anticipated revenue, management said it had Prime Day to thank.

In Q3, yes, I would say we had a very strong Prime Day. ... We had a record day for sign-ups for free trials for Prime and Prime Day globally. Had a very strong Prime Day in particular internationally. So it really got a lot more traction in this, the third year that we've had it. So I would point mostly to those factors.

Following its self-made shopping holiday in July, Amazon said sales on Prime Day soared 60% year over year, surpassing both Black Friday and Cyber Monday. "Tens of millions" of Prime members, or 50% more than last year, made a purchase on the shopping day, Amazon said. Amazon also said a record number of people joined Prime during the event, a special sale only for Prime members.

These trends apparently continued to pay dividends throughout the quarter.

Amazon said growth in Amazon Web Services also played a key role in the company's better-than-expected revenue. AWS revenue is now at an $18 billion annual run-rate, up from $16 billion in Amazon's second quarter.

Plans for Whole Foods

When asked about Amazon's integration of its Whole Food's acquisition, Olsavsky said, "so far so good."

Whole Foods Store in Lakewood, CO

Image source: Whole Foods Market.

To date, Amazon has primarily focused on lowering Whole Foods' prices, selling the grocer's private label brands on, and installing Amazon Lockers at some locations, Olsavsky explained. But there's more on the horizon, he said, "I think over time, you'll see more cooperation and working together between AmazonFresh, Prime Now and Whole Foods, as we can explore different ways to serve the customer."

The earnings call captured Amazon's unstoppable ambition. Just as Amazon's core e-commerce and cloud business are firing on all cylinders, management is waist-deep in its plans for its next frontier: physical stores.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

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