There was a lot to like in Amazon.com's (NASDAQ:AMZN) first quarter. Earnings per share more than doubled as the company's net sales grew 17%, and its operating margin expanded significantly. Results were bolstered by continued rapid growth in Amazon Web Services, third-party seller services, and subscription services.
But there's more to the quarter than the key metrics found in Amazon's earnings report. During the e-commerce and cloud-computing giant's first-quarter earnings call, management shared further insight into its business, including a look at its plans to expand one-day shipping, the health of its Prime program, and an update on Whole Foods.
Here are some key excerpts from the call.
Here comes free one-day shipping
While Amazon for years has been increasingly offering shipping times faster than two-day delivery, including one-day, same-day, and even one- to two-hour delivery times, these efforts have mostly been limited to big cities. For the rest of Amazon's customers, the main value proposition for Prime members has remained what made the loyalty program famous in the first place: free two-day shipping.
But now Amazon wants to up the ante and change the norm for shipping times in its Prime program, explained Amazon CFO Brian Olsavsky.
[W]e're currently working on evolving our Prime free two-day shipping program to be a free one-day shipping program. ... For Q2 guidance, we've included approximately $800 million of incremental spend related to this investment. ... this is all about the core free two-day offer morphing into -- or evolving into -- a free one-day offer.
The Prime ecosystem is as strong as ever
When asked about customer churn in its Prime membership program, Olsavsky refrained from providing any concrete data, but he made it clear that members are as loyal as ever.
So we are very happy with the -- not only the absolute membership levels of the Prime program, but also the engagement ... Prime benefits: shipping, hours watched on video, hours listened to on music -- all of them are trending in the right direction and continue to get more and more sticky.
In addition, morphing its core shipping value proposition from free two-day shipping to free one-day shipping will only make Prime even more compelling.
Whole Foods sales are better than they look
While it's true that Amazon's Whole Foods business accounts for nearly the entirety of the company's physical stores segment, the 1% revenue growth rate the segment posted in Q1 significantly understates the grocery business's growth.
"I'll remind you that the physical stores revenue is principally Whole Foods revenue, but it excludes the online ordering component," explained Olsavsky, "where people order on the Prime Now app and it's delivered to them. That shows up in our online stores classification."
Including online orders from Whole Foods, sales were up 6% year over year in each of the last two quarters.
Olsavsky added that Amazon is "very happy" with customers' recognition and adoption of Prime benefits for purchases from Whole Foods.