Amazon.com Earnings Call Insights: Fixed Fulfillment Costs and Business Shifts

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

Fixed Fulfillment Costs

Scott Devitt – Morgan Stanley: Tom, it looks to us that you’ve successfully begun a transition of your logistics costs in the direction of being more of a fixed fulfillment cost with lower unit base shipping cost, given that the growth rate of outbound shipping is now meaningfully below the fulfillment growth rate. So the question is, just is that something that we should expect to continue now on the back of this meaningful fulfillment center expansion ramp, and then separately, but on the same topic we’re also wondering are there other parts of the business in which you can make this transition to more of a fixed cost in the future.

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Thomas J. Szkutak – SVP and CFO: In terms of the fulfillment question, you’re right in terms of over the past few years we have expanded our fulfillment network pretty extensively to the point where we are closer to customers and you’re seeing that reflected in our transportation costs. You can obviously see the fulfillment expense really not fixed in terms of in absolute terms, but you can see that we had 20 fulfillment centers last year and that’s reflected in the operating expense that you’re seeing. But that is a benefit of adding to our fulfillment center network. We’re closer and closer to our customers with some — a lot of (target) selection and so you’re seeing that reflected in the individual business gross margins which shows up as benefits of transportation costs. In terms of other opportunities, certainly there are a number of opportunities as we invest in individual customer experience areas across the business. Many of those will be on our website. We have a relatively fixed expense as we launch those and we amortize those costs over our full customer base. So, as they grow they become more effective on per unit or per customer basis. So, there is a number of opportunities that we have had and will have going forward to do that.

Business Shifts

Douglas Anmuth – JPMorgan: Just wanted to ask about the shift to the third party and I guess in particular I think in last 4Q you talked about shifting more of the business in the video game space in particular to the third-party. Are there certain categories that you would specifically point to in this last 4Q where you made sort of a similar shift?

Thomas J. Szkutak – SVP and CFO: We did see a good expansion as you mentioned in 3P, third-party units as a percentage of total units increased from 36% last year Q4 to 39%, an expansion of an approximately 300 basis points. Overall, unit growth rate for the quarter in total was 32% and our third party growth rate was in excess of 40%. So again, nice growth. It is you are certainly seeing in a number of areas, you see it certainly in our new EGM business, if you look at our North America growth rates, you can see that our revenue was up 23%, but our total unit growth rate was substantially faster than that and our third-party units were growing very faster there as well. So there is a number of different areas that you are seeing that, but certainly you are seeing it there.

A Closer Look: Amazon.com Earnings Cheat Sheet>>