Amazon.com Earnings Call Insights: Economics of Shipping and Grocery Business Profitability

Amazon.com Inc (NASDAQ:AMZN) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Economics of Shipping

Ross Sandler – Deutsche Bank: Just had one question on shipping. It looks like the unit efficiency in shipping continues to improve. What are you guys doing to drive the cost of shipping each unit lower and are there more costs that can be taken out on a per unit basis? Then, as you start looking at same-day delivery in some of these markets, including the new grocery program, what incremental costs you see around doing same-day fulfillment?

Thomas J. Szkutak – SVP and CFO: In terms of the economics, we have a great team, operations team that’s working on how do we serve customers reliably and fast. So certainly that’s reflected in our transportation cost. Also, from a productivity standpoint, which is as we add capacity, we are just getting closer and closer to customers with larger selection, which certainly help from a productivity standpoint. So those are some of the dynamics that you need to think about when you think about our transportation costs. The team’s has done a great job over the years of becoming even more reliable and faster and more productive, and again they’ll be working on ways to make that even better over time.

Grocery Business Profitability

Douglas Anmuth – JPMorgan: Just hoping you could talk a little bit more just on the profitability of the grocery business and how you’ll know when is right time to expand to more markets beyond Seattle and LA? And then also, if you could comment on the European macro environment just given the growth that you saw in the international business just de-selling a little bit from last quarter?

Thomas J. Szkutak – SVP and CFO: In terms of the Fresh business, we started doing the pilot several years ago in Seattle. We did a number of – the team has done a great job inventing on behalf of customers. It’s very good customer experience. The challenge that we had over the past several years is how to make it economically viable. The team has done a lot of different experiments and invented well on behalf of customers to see what works, and we took a lot of that knowledge, which enabled us to launch Fresh in LA. It’s very early there, still in the trial period. It’s good customer experience and we like what we see so far, but it’s very, very early. So, it’s something they will continue to work on both from a customer experience and from an economic standpoint, and there is not much more I can add to that right now. So, you have to stay tuned and see where that ends up.

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