Amazon’s North America Segment Margins Improved in 2Q15
Must-Know Factors Driving Amazon's Stock
Amazon managed to grow its operating margins for North America region
Amazon’s (AMZN) North America region has performed well in terms of margins. As the chart below shows, Amazon’s operating margins from its North America region have improved from 3% in 2Q14 to 5.1% in 2Q15. The margins have improved on a sequential basis as well, increasing from 3.9% in 1Q15. Better margins in 4Q14 have been the only exception, mainly because of the leverage that the company received from higher revenues in the holiday season.
The company cited that this improvement of margins is coming not only from higher revenue growth, but also from the efficiency of fulfillment and marketing cost segments. Fulfillment and marketing costs as a percentage of revenues were stable on a year-over-year basis.
Amazon benefited from Prime Day’s success
According to Amazon, the revenue growth in the North America region came from higher adoption of the Prime program. In this regard, the company launched its first-ever Prime Day on July 15, 2015, offering exclusive lightning deals to its Prime members for a day. According to the company, Prime Day was a huge success, and new Prime members signed up in higher numbers than ever.
Following this initiative from Amazon, Walmart (WMT) launched its own counter-sale on the same day. Walmart criticized Amazon’s initiative, mentioning that it is only available to Prime members who pay $99 per year for a membership. Other online retailers eBay (EBAY) and zulily (ZU) have also launched similar flash deals in the past. Incidentally, QVC parent company Liberty Interactive (QVCA) recently acquired zulily for $2.4 billion.
To gain diversified exposure to Amazon, you could invest in the Consumer Discretionary Select Sector SPDR ETF (XLY). XLY invests 8.7% of its holdings in Amazon.
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