Earnings Call Nuggets: Intl Margin and Unit Growth

On Thursday, Inc (NASDAQ:AMZN) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

International Margin and Shipping Revenue:

Scott Devitt – Morgan Stanley: Two please, if I could Tom. First on international margin, I know some of that actually is affected by currency. I was wondering, if you could speak to the effect of currency that it’s having on margin. Then secondly, what else is driving that down? I would anticipate China investment digital and Italy and Spain being contributors there? Then secondly on shipping revenue up 44% year-over-year I was wondering if you could break that down between shipping revenue or more versus the revenue allocation of FBA.

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Thomas J. Szkutak – SVP and CFO: To take the first part of your question Scott, as it relates to operating profit in international you have the big pieces correct. First one is, we’re investing certainly very heavily in capacity and so you’re seeing that both fulfillment and infrastructure capacity that’s impacting our results there. In addition to that we’re investing in the number of new geographies. We’ve talked about Italy and Spain over the last several calls those are certainly having an impact. We’re very excited about the opportunity that we have there, but certainly those are investments right now. China as you also mentioned is great a long-term opportunity for us, but certainly an investment and it is impacting that number. In addition one that I don’t think you did mention was may be our content for international. We’re investing heavily in video content through our subsidiary LOVEFiLM for Europe. So, those are things that are the primary drivers of what you’re seeing in operating income in international. In terms of shipping revenue there is not a lot, I can help you, with there is a number of factors saw that go into that number. If you take a look at both, the shipping revenue and then the resulting net shipping cost of fuel, the net shipping costs is getting a little bit better over time it’s getting closer and closer to customers with our RFC footprint. So, those are some of things, but again a lot of dynamics that are certainly impacting that shipping revenue number.

Unit Growth:

Mark Mahaney – Citi: Any comments on the paid unit growth deceleration that seem to have been relatively significant, anything about the comp or any read into that? Secondly, given all the infrastructure investments you’ve made, Tom you just mentioned some of the shipping efficiencies, you’re also seeing fulfillment as a percentage of revenue kind of start narrowing a little bit. Do you think you’ve reached a bit of a cyclical — investment cyclical tipping point or am I over reading into just one quarter?

Thomas J. Szkutak – SVP and CFO: In terms of the paid unit growth question, it was 39%. As you mentioned it was a deceleration from last quarter. Keep in mind still, the 39% growth is still growing at a faster rate than revenue, one. Two, if you take a look at last year’s (time) unit growth in Q3 the 53% that we had, that was the second highest quarter that we’ve had in growth rate in the last 10 years. So we’re overlapping a very strong growth last quarter. In terms of fulfillment expense, certainly as we’ve talked about in the past few years, stepping up very heavily in 2010 and 2011 and ’12 from a fulfillment standpoint, we’ve just seen unprecedented growth and we’ve added a lot of capacity, in terms of where it will level off, we’ll have to wait and see. Right now, we’re still experiencing very strong growth, with 30% growth on a local currency basis, 39% unit growth. So, we’re going to continue to invest where we need to and the fulfillment capacity we do have, we’re going to make sure that we operate as efficiently as we can and get more efficient with that capacity over time.

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