Amazon financial report: Amazon's profit margin in Q1 2012 was 1.5%

Amazon has just released its financial report for the first quarter of this year. From the overall data, Amazon's performance this quarter is good, exceeding Wall Street's expectations. At the same time, Amazon's book business is still developing rapidly, and Kindle sales are also strong. However, this report also reveals a bottleneck in Amazon's current business model and a strategic direction for Amazon this year.

The profit is too small

Although all of Amazon's major businesses have seen an increase in sales and revenue this quarter, Amazon's overall profit margin is still very narrow and its net profit has also declined. Amazon's global profit margin this quarter was 1.5%, down from 3.3% a year ago. Apple's profit margin this quarter was as high as 44.7%. Although it is meaningless to compare these two unrelated data, it also indirectly illustrates the difference between the two companies in terms of business and business model.

For Apple, it only needs to focus on those few star products. The profit margin of electronic products is quite considerable. At the same time, Apple has further expanded its profit margin by positioning its products at the high end and outsourcing its production. Amazon, on the other hand, sells everything as an e-commerce company, and must sell its products through various channels to ensure profitability. Since the profit margins of different products are different, and physical retail involves various organizational and logistics costs, its actual profit margin is still relatively limited.

Fortunately, Amazon's digital products do not have the other costs of physical goods, so the Kindle series is expected to expand Amazon's profit margins. And this strategy seems to have worked. Today, comScore released a report saying that Kindle Fire's market share accounts for more than half of Android tablets. Although Amazon did not make much money from Kindle and Kindle Fire themselves, these two products helped Amazon rapidly expand its consumer market and promote the consumption of its digital and retail products.

However, there is another reason that cannot be ignored: Amazon has invested a lot of money in the future development of the company, which is Amazon's consistent style. It has become an industry creed that public companies should do their best to ensure the long-term development of the company and maximize shareholder value. Amazon is a model in this regard, and it is still one of the fastest growing companies in the world.

Big Investment

Amazon's return on investment fell to 12%. However, it must be said that several of Amazon's investments this quarter are long-term investments.

Kindle Fire can be said to be Amazon's first star product, and it is an investment in itself. As we have said before, Amazon cannot make money by selling Kindle Fire itself, but it is an important step for Amazon to occupy the consumer market. And this step has now been considered a success. Those who buy Kindle Fire do consume more Amazon's media products, and the latter is Amazon's money-making tool.

In addition, Amazon spent $775 million to acquire Kiva Systems this quarter. The robots that Amazon uses to manage its warehouses are all produced by Kiva. So, after this acquisition, Amazon can build its own robots. The acquisition is expensive, but Kiva's robots can lift up to 3,000 pounds of goods and swarm around the warehouse like bees. Moreover, the warehouse's computer control system will command the robots to put the best-selling goods in the front and put the goods for matching sales on the same shelf. Mick Mountz, founder of Kiva System, said that Kiva can process 2-4 times more orders per hour than traditional methods. Therefore, this efficient warehouse management may bring greater profit margins to Amazon's product sales. Moreover, Amazon can now make a fortune by selling these robots to other companies.

Recruiting troops

But, strangely, Amazon did not hire fewer people because of this. In fact, Amazon's third largest investment this quarter was to hire 9,400 employees, which is the largest quarterly hiring in Amazon's history. According to Amazon's CFO, most of the new employees are working in operations and customer service departments.

Logically, Kiva's robots should reduce a lot of labor for Amazon, so why does Amazon still need to recruit people on a large scale? Part of the reason is that as Amazon's business model expands in scale, manual labor will also increase.

The article comes from 36kr