Home / Business / Amazon.com Inc (AMZN) Q1 2020 Earnings Call Transcript

Amazon.com Inc (AMZN) Q1 2020 Earnings Call Transcript



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Amazon.com Inc. (NASDAQ: AMZN)
Q1 2020 earnings call
April 30, 2020, 5:30 p.m. ET

Content:

  • Prepared comments
  • questions and answers
  • Call participants

Prepared comments:

operator

Thank you for being ready. Hello everyone, and welcome to the Amazon.com financial results conference call for the first quarter of 2020. At this point, all participants are in a listen-only mode. After the presentation, we will have a question and answer session. Today̵

7;s call is being recorded. For the opening speech, I will forward the call to Shelly Kay Pfeiffer, Director of Investor Relations. Please continue.

Shelly Kay Pfeiffer – – Director of Investor Relations

Hello and welcome to our conference call on first quarter 2020 financial results. Brian Olsavsky, our CFO, and Dave Fildes, Director of Investor Relations, are coming to us today to answer your questions. When you listen to today’s conference call, we recommend that you have our press release in front of you, which contains our financial results, key figures and comments for the quarter. Please note that unless otherwise stated, all comparisons in this call violate our results for the comparable period of 2019. Our comments and answers to your questions only reflect management’s views as of April 30, 2020, and contain forward-looking statements. Actual results may vary significantly. Additional information on factors that could affect our financial results is contained in today’s press release and our filings with the SEC, including our most recent annual report on Form 10-K and subsequent filings.

During this call, we can discuss certain non-GAAP financial measures. In our press release, the slides attached to this webcast, and our filings with the SEC, each published on our IR website, you will find additional information about these non-GAAP measures, including the reconciliation of these measures with comparable GAAP measures. Our guidelines take into account the order trends we’ve seen so far and what we believe to be reasonable assumptions today. Our results are inherently unpredictable and may be materially impacted by many factors, including exchange rate fluctuations, changes in global economic conditions and customer spending, world events, the growth rate of the Internet, online trading and cloud services, and the various factors detailed in our records at the SEC.

These guidelines also reflect our previous estimates of the effects of the COVID-19 pandemic on our business, including those discussed in our filings with the SEC, and depend heavily on a number of factors that we may not be able to predict or control , including the duration and spread of the pandemic, action by governments, businesses and individuals in response to the pandemic, the impact of the pandemic on global and regional economy and economic activity, the workforce and productivity of our workforce, and our significant and sustained spending on security measures for employees; Our ability to continue operating in the affected areas, consumer demand and consumption habits, and impact on suppliers, creditors and third-party sellers, all of whom are uncertain. Our guidelines assume, among other things, that we do not conclude any additional company acquisitions, investments, restructuring or legal settlements. It is not possible to accurately predict the demand for our goods and services, and therefore our actual results may differ materially from our forecasts. And now I’m going to transfer the call to Brian.

Brian T. Olsavsky – – Senior Vice President and Chief Financial Officer

Before we move on to the questions and answers, I would like to start with a few comments. What we have all seen in the past two months has been unbearable and unprecedented, but it has also been a time of heroic action by health care workers, government officials, police and emergency personnel, as well as all key community workers. This includes Amazonians at the forefront, including our Whole Foods team and our partners around the world. During this critical time, you provided us with a lifeline for food and other important supplies.

I want to give you an insight into what we saw on Amazon and how we are responding to this crisis. From the beginning of March, we saw a sharp increase in customer demand, especially for household clips and other important products in various categories such as health and personal care, food and even home office supplies. At the same time, the demand for discretionary items such as clothing, shoes and wireless products was lower. This huge surge in demand posed major challenges for our operating network, our sales community and our suppliers.

While we generally have experience of preparing for peaks in demand for well-known events such as the holiday season and Prime Day, we generally also spend months preparing for these periods. The COVID crisis did not allow such preparation. We quickly took action to respond to the higher order levels while ensuring the safety of our employees. We have established strict safety and cleaning protocols, including maintaining a social distance of two meters, procuring 100 million masks, tens of millions of gloves and wipes, and other cleaning agents. In our Whole Foods stores we have added plexiglass barriers between cashiers and customers and reserved special times for older customers to shop. We temporarily increased wages and overtime bonuses, funded a new Amazon Relief Fund, and allowed employees to take unpaid free time at their discretion.

To meet unprecedented demand, we hired an additional 175,000 new employees, many of whom were driven from other jobs in the economy. We have taken steps to curb demand for non-essential products, including reducing our marketing spend. Our network focused on shipping priority products within one to four days and extending promises for non-priority items. Our independent third party vendors, most of which are small and medium-sized businesses, have worked extremely hard to serve our customers and we are grateful for their efforts. Third party vendors continue to grow strongly in our stores as more than half of our units sold come from third party vendors. We increased food delivery capacity by more than 60% and expanded Whole Foods store pick-up from 80 stores to more than 150 stores. Other Amazon teams have focused on directly helping customers fight the COVID virus.

AWS has created data lakes to help healthcare workers, researchers, scientists, and public health officials work to understand and combat the corona virus. Many of our AWS products help the government respond to the crisis and are designed for customers who see their own peaks in demand, such as enabling video conferencing, remote learning, and online health services. Amazon Flex is helping food banks donate food delivery services to serve 6 million meals in Los Angeles, Miami, Nashville, Orlando, San Francisco, Seattle, and Washington DC, and plans to increase that number to 25 cities in the United States. And Alexa helps customers access key CDC guidelines and help them assess their own COVID-19 risk.

How does that affect our business? While customer demand remains high, the additional revenue we see for many of the lower ASP products will be essentially costly. We invested more than $ 600 million in COVID-related costs in the first quarter and expect these costs to increase to $ 4 billion or more in the second quarter. This includes productivity headwinds at our facilities as we keep social distance and increase the number of new employees, invest in personal protective equipment for employees, improve cleaning of our facilities, increase wages for our hourly teams, and develop hundreds of millions of COVID-19 test features. In the first quarter, we had an additional $ 400 million expense related to increased doubtful account reserves.

On the other hand, we saw a decrease in travel, entertainment, and meeting costs, as well as less marketing to curb our demand for non-essential items. While we cannot be sure what the next quarters will look like, I am humble about my Amazon colleagues’ efforts to provide important goods and services to so many people. We take this responsibility seriously and take pride in the work of our teams to help customers in this difficult time. So let’s open up to questions.

Questions and answers:

operator

[Operator Instructions] Your first question comes from Doug Anmuth with J.P. Morgan. Please continue with your question.

Doug Anmuth – – J.P. Morgan – analyst

Great, thanks for answering the question. First of all, I just wanted to ask if you could spend hundreds of millions of dollars on your own testing functions as part of the $ 4 billion additional COVID-related cost. Can you only talk about the strategic thinking underlying the attempt to build this in? House versus sourcing from elsewhere and may lead you to a new business path over time. And how do you think about the spending here in the second quarter and whether this will change your margin structure over time over a longer period beyond the next quarter? Thanks a lot.

Brian T. Olsavsky – – Senior Vice President and Chief Financial Officer

Doug sure. We estimate the tests will be about $ 300 million in the second quarter if we are successful. We put some of our best people on it. I think everyone tries to test. It is not readily available on the scale for which we need it – to test our number of employees. So we’re working on doing it ourselves and making logs and – and we’ll see again how we do it differently, and again I don’t know anything about future business opportunities. Our main concern is to get tests in the hands of our employees. If we then have excess capacity, we may be able to help in other areas.

In terms of spending, many of the costs we see are related to this COVID response. Most of it affects people, which costs productivity as well as wages and aid and everything. So we can’t really say how long that will take. It’s probably good that I’m only giving – we’re only giving instructions for the second quarter right now. We will likely learn and update a lot more in the coming weeks, months, but at the moment most of our temporary costs are in the scheme of things, but certainly very expensive temporary costs and also those that we are not sure about are how long they will take.

Doug Anmuth – – J.P. Morgan – analyst

Great. Thanks Brian.

operator

Your next question comes from Brian Nowak with Morgan Stanley. Please continue with your question.

Brian Nowak – – Morgan Stanley – analyst

Thank you for answering my question. I have two, Brian. The first is that the current situation, in my opinion, shows in many ways the ability of your network to deliver goods to people and the value of Prime and Amazon for customers. With that in mind, you can talk to us at all about the impact you have seen on the Prime customer account from the current situation and any color of how you could extend Prime’s reach to new customers or demographic data.

And then the second one, I know there are a lot of changes in logistics and things, but Amazon is always a learning company. All the insights you’ve received so far on the logistics page about how you could actually learn some new best practices to work more efficiently after the COVID after the current brand you’ve been through.

Brian T. Olsavsky – – Senior Vice President and Chief Financial Officer

Well, I think we have learned that it is easier to prepare for a vacation or prime day than to prepare for something like this when everything hits at once, there is high demand and then it also has to be automatically refilled and prepared for it . So we don’t want to learn that any further, but we are doing our best to maintain and provide important services for our Prime customers and all of our Amazon customers.

Again, what we see in the Prime program is that the Prime Shopping benefits are increasing sharply. We see that our Prime customers shop more frequently and have larger shopping cart sizes. We also see that our video and digital benefits are used much more. In March, the number of viewers almost doubled for the first time. I think this is a good time for people to – if they are – many of them to stay at home, to be entertained and to watch our video collection. It goes beyond Prime Video, our channels and video rental have also increased as I am sure others have seen this in the entertainment business.

I think people benefit more from Alexa when they are at home, they listen to more music and ask questions, especially questions about COVID and the problems associated with it. They use it in education with their kids and I think we see a lot more on the communication side, people using Alexa call and come over. I think the main story is that shopping is really important for people now, especially when these people can’t leave their homes. I think the digital benefits scale well. I think they are coping with the additional demand and it gives people a good time and reason to take advantage of all their prime benefits that they may not have used so often in the past.

Brian Nowak – – Morgan Stanley – analyst

Great, thanks, Brian.

operator

Your next question comes from Mark Mahaney with RBC. Please continue with your question.

Mark Mahaney – – RBC Capital Markets – analyst

Thank you, two please. First, you could only talk about where you are in terms of fulfillment efficiency – as you track it, you know that before COVID, Amazon was able to have a certain standard of meeting demand within a certain period of time how low that has become in the face of increasing demand and where you are in terms of recovery. In other words, when will you be – how long will it take for Amazon to return to a point where you had the same service efficiency on the retail side as before COVID, how far are you away from it?

And then the second was you could talk about the AWS business and I think I would have expected the growth rate to be really robust, but maybe there is even an increase in the growth rate – what do you see there in relation to – – I’m assuming that AWS is now being used much more often. Is that something that may appear delayed in the income statement? Just talk about what happens to this side of the business in this crisis. Thanks a lot.

Brian T. Olsavsky – – Senior Vice President and Chief Financial Officer

Sure, well, we’re happy again with the first quarter growth on such a large basis – now it’s a run rate of $ 41 billion, up 33% year over year, but what we’re seeing is kind of the post -COVID it differs depending on the industry. We think we are probably a bit well positioned because we have so many customers that there are millions of active customers from startups, companies and the public sector. So there are big differences in what individual sectors are currently seeing. Things like videoconferencing, gaming, distance learning, and entertainment have seen much higher growth and usage.

And things like hospitality and travel have certainly contracted very strongly and very quickly. I think there will be a mixed bag for industry, and this would of course be openly tied to the general economic conditions for the country and the world. Now we want to be there for our customers, we want to be able to scale when they need us. We want to be there to support them regionally around the world and we have done a good job with it, I believe.

In terms of fulfillment efficiency, I think you’re talking about a day, probably the centerpiece of your question, when will we go back to what we saw in a day. So a little bit more. As I mentioned in my introductory comments, we had to somehow absorb this shock of topline demand and the ability to stabilize our processes. We had to take the step to focus on essential items, extend the delivery time from one to four days, and then move on to non-essential items. Had to limit things that came to the warehouse and focused on essential products. We believe that this is still the right way to go. If we increase capacity, we will try to resume normal operations in terms of shipping non-essential items and accelerating one-day deliveries.

I will go into the one-day shipping costs a bit, as this is coordinated with them. So we originally thought we would spend about $ 1 billion on one-day shipping in the first quarter, and we see that we spent about the same amount because it is – earlier we might have had the option to ship Things two days, three days, four days and you see a price reduction for the actual shipping, but most of our one-day costs are really what we did to our logistics networks to enable one-day shipping things like bringing inventory closer to the Customers, the structure of our AMZL network and our delivery network as well as multiple storage [Phonetic] Times and shipping windows during the day.

So these are actually coming in – all of these things are very useful for us to get more capacity out of what we currently have and we’re glad we made this investment, but we don’t actually see any savings because we still have things ship as soon as they are available to customers very quickly. So it’s really a combination of the time it takes to stock, pick, pack and ship things. The shipping is still pretty quick and is still coming fast. It only takes longer for things to get to and from our warehouse. Now that’s really the challenge of speeding it up, and it will – if we do that, we’ll see a one-day service again, but for now, things are still in the air so that I can. I don’t really project when that day will be or at what point in Q2 or Q3 or beyond.

Mark Mahaney – – RBC Capital Markets – analyst

OK. Thanks Brian.

operator

Your next question comes from Heath Terry with Goldman Sachs. Please continue with your question.

Heath Terry – – Goldman Sachs – analyst

Thanks a lot. I just wanted to go a little deeper into your comments on AWS. Yesterday, during the Microsoft call, you mentioned that in two months you saw a two-year digital transformation in the cloud. Curious if you – how would you characterize what you saw when we went in August – or in April about cloud adoption and what this means for AWS and the introduction of – the adoption rate or acceleration in this business, maybe more general.

And then, if we look at the forecast, the $ 4 billion in second quarter spending. If we adjust to this, it means a fairly substantial increase in profitability over the previous quarter. Any feeling that you can tell us what the drivers of this profitability are, how much of it is the annualized investment and the efficiency that you see there compared to anything else you would call annualized?

Brian T. Olsavsky – – Senior Vice President and Chief Financial Officer

Yes, so first at AWS. I mean, I don’t have any comments, maybe you heard about the digital transformation. I think I would say we have continued to see healthy acceptance of our business and healthy use not only in the United States but worldwide. Our backlog of future contracts continues to grow, and I still think that AWS’s fundamental value proposition that we have always pointed out – things like the largest, most functional, and largest, and most dynamic community of customers and partners that have proven to work The COVID crisis has not yet hampered the security experience and building customer needs in the areas of machine learning, artificial intelligence and other really important areas. Yes, we see different performances in different industries, but our sales people are still there to help not only with the current capacity but also with the transition to new ones – as people take this journey to the cloud and then use it expand the cloud.

With the $ 4 billion – sorry, the second quarter guidance I think maybe the question is whether – how we have a margin over zero when we have a $ 4 billion cost, that’s pretty much it the essence of your question. I think there are some efficiency advantages that we would achieve with higher volumes in fixed costs, even if they are somewhat balanced based on the premium gain. With high volumes, our cost structure improves. There has also been a resumption of seller volume, especially from third parties who use direct deliveries to customers and businesses alike – you get more options both in this country and in other countries.

We will continue to moderate our marketing during the period when we have pretty much the demand that we are trying to meet and there are some products that are not yet in stock. So it doesn’t make sense to always do marketing in these situations, especially variable marketing, and we continue to do so. We believe we’ll save on travel and entertainment expenses over the quarter. That is in – I would say in a few hundred million dollar size ranges at the expense. So there are a lot of moving parts here, but the investment we make in the COVID reaction is certainly quite significant.

One day I would like to remind you that one day started in the serious second quarter of last year. So let’s start overcoming this investment. It’s not as big as it was in the past four quarters year-on-year, and the other thing I want to point out is: remember the impact of changes in the lifespan of our servers that mainly affect the AWS business $ 800 million year-over-year benefit in the first quarter, which will continue throughout the year. Again, this is the benefit we see when we can use our server and infrastructure assets longer. We worked on making it run longer and being a kind of hardware and software challenge. Since we have been successful there and work on a large scale for over 13 years, we have been able to extend our useful life for assets. We recognize that we have extended life. So this is an advantage that we saw in the first quarter and that we will see from now on.

Dave Fildes – – Director of Investor Relations

Yes, just to add that: I think it’s about $ 800 million, or almost $ 800 million in the first quarter. We expect the change to decrease over the course of the year. So keep that in mind.

Heath Terry – – Goldman Sachs – analyst

Right, thanks, Brian.

operator

Our next question comes from Eric Sheridan from UBS. Please continue with your question.

Eric Sheridan – – UBS – analyst

Thank you for answering the questions. Maybe two if I can. One on request or [Phonetic] the revenue side. Any difference in behavior that you have seen in different shelter-in-place regions around the world, be it in Europe or the United States or in Asia and in the United States or India in relation to consumer behavior or certain elements of the Acquisition of certain product categories when we got the month of March. I’m excited to see what differences you’ve seen on a global scale, including the launch of Prime in response to COVID-19. And a quick question on the cost side: The cost of energy and oil has dropped dramatically. You wanted to know if there was a way to describe this or an element of it in your overall cost structure as. Over time, you’ll do more of your own logistics. Thanks a lot.

Brian T. Olsavsky – – Senior Vice President and Chief Financial Officer

For sure. Sorry Eric, I don’t have much for you on the second point. Certainly we would try to see lower shipping costs even though I would – many, I mean, there are certainly things we do on long haul, there are things we reposition on planes, there are things we do Long-haul trucks do, and that’s where the fuel component would likely be bigger, but we haven’t quantified that this is – not for – included in our guide, but I can’t break it out for you right now.

How this may have developed differently in different regions. We actually see a lot of consistency that I would say in terms of the types of products people buy and the restrictions on staying at home, so it was pretty consistent. There are obviously temporal differences between countries when it hits certain countries and when it is – maybe where they are in their curve and flattening their curve and so on. I think the greatest international influence was in India, where of course, like all companies in India, we only fulfill our essential goods like food. This has severely restricted our offering and we will continue to expand when the Indian government announces that we may resume operations. So we’re on hold, except at the grocery store in India.

And in France, the French courts imposed restrictions on us. They had no impact on Q1 business as this essentially resulted in the closure of our French fulfillment centers in mid April. French customers can still order millions of products from our distributors that can be shipped directly to customers and through our global fulfillment. We continue to appeal this court decision, but that is a different experience than in other countries at international level.

Eric Sheridan – – UBS – analyst

Thanks a lot.

operator

Our next question comes from Justin Post with the Bank of America. Please continue with your question.

Justin Post – – Bank of America – analyst

Great, a few who are just wondering if you see sustained changes in consumer habits that you could call, e.g. B. People who switch to Prime faster and add more products in the consumer goods categories to their subscription and save. Anything you see could signal a longer-term change in consumer habits and faster adoption of certain categories. And the second thing that applies to the second quarter sales forecast is the assumption of a slowdown in growth in May and June related to the crisis. Thanks a lot.

Dave Fildes – – Director of Investor Relations

Hey Justin. It is Dave. I’m thinking about some of the consumer behavior. I definitely point to grocery. Wenn Sie sich das ansehen – zur Erinnerung, das Online-Lebensmittelgeschäft ist in unseren Online-Verkäufen enthalten. Es ist also nicht isoliert, wie Sie es für physische Geschäfte sehen können, aber wir haben eine erhöhte Nachfrage beim Online-Einkauf von Lebensmitteln festgestellt, und wir haben eine Reihe von Möglichkeiten für Kunden, dies zu tun: Prime jetzt, frisch und dann natürlich Whole Foods online für die Lieferung Oder wir beginnen und beginnen wirklich im März und setzen uns jetzt bis April fort. Wir sehen, dass die Nachfrage steigt, so dass dies weitergeht und wir uns sehr darauf konzentrieren, rund um die Uhr zu arbeiten und so viel Lieferung wie möglich anzubieten.

Wir haben die Lieferauftragskapazität um mehr als 60% erhöht und unsere Filialen sind gestiegen – Whole Foods-Filialen, die Abholmöglichkeiten bieten, sind von rund 80 Filialen vor den Veranstaltungen auf über 150 Filialen gestiegen. Dort wird also viel Arbeit geleistet. In den physischen Läden, in denen Sie das Wachstum sehen können, stieg es gegenüber dem Vorjahr um etwa 8%. Das ist vorwiegend Whole Foods, aber es ist eher das Einkaufserlebnis von Whole Foods im Laden als die Online-Bestellung. Das ist also einiges mehr als die Laufrate, die Sie in den letzten Quartalen gesehen haben. Es ist wieder ähnlich, dass Sie viele Leute gesehen haben, die – da die Maßnahmen für den Aufenthalt zu Hause noch nicht getroffen wurden, in großen Mengen einkauften und sich in unseren Läden eindeckten.

Seit dieser Zeit, in jüngerer Zeit, haben wir einige dieser Wachstumsraten für das Einkaufen im Laden moderat gesehen. Es wird also viel Arbeit dort geleistet – sowohl für die Arbeiter, die die Lieferung erledigen, als auch für die Arbeiter, die in den Läden sind. Wir konzentrieren uns sehr darauf, sicherzustellen, dass sie sicher und gesund sind und sich anpassen können Kunden und stellen Sie sicher, dass die Kunden sich wohl fühlen, wie auch immer sie einkaufen.

Brian T. Olsavsky – – Senior Vice President und Finanzvorstand

Und ich würde Justin hinzufügen. Wissen Sie, ich denke, die Änderungen, die wir in den digitalen Angeboten gesehen haben, werden die Menschen an diese Vorteile gewöhnen und möglicherweise ihr Wissen darüber erweitern, was durch Musik, Video, Alexa und sicherlich Kommunikationsfunktionen auf unseren Geräten verfügbar ist. Wir haben Prime Video Cinema in den USA, Großbritannien und Deutschland gestartet, wo Filme wegen fehlender Kinos direkt auf Pay-per-View umgestellt werden. Das war ein guter Schachzug des Teams, der sehr gut aufgenommen wurde und wir haben auch viel gemacht von Inhalten für Kinder und Familien, die kostenlos auf Prime Video angesehen werden können. Ich denke, die Leute bekommen einen besseren Überblick darüber, was mit ihren Prime-Mitgliedschaften verfügbar ist.

Justin Post – – Bank of America – Analyst

Großartig und dann in der zweiten Hälfte des Quartals. Gehen Sie davon aus, dass wir im Verlauf des Quartals wieder normal werden und etwas langsamer werden?

Brian T. Olsavsky – – Senior Vice President und Finanzvorstand

Nun, wir sind wieder stark eingeschränkt, es ist ein merkwürdiges Quartal, denn im Allgemeinen ist die größte Unsicherheit, die wir haben, die Kundennachfrage und was sie bestellen und wie viel davon sie bestellen werden. Die Nachfrage war stark und die größten Fragen, die wir im zweiten Quartal haben, betreffen eher die Fähigkeit, diese Nachfrage zu bedienen, und die Produkte, die die Kunden vollständig bestellen, ohne zu blockieren oder es schwierig zu machen, nicht wesentliche Artikel zu finden, das Marketing und alles andere zu steigern .

Ich denke, die Herausforderung liegt wirklich auf allem außer der Oberlinie. Topline ist sicherlich nicht selbstverständlich. Es ist immer wichtig, attraktive Angebote für Kunden auf Lager zu haben, aber normalerweise die Dinge, auf die Sie zählen können – die Kostenstruktur, die Fähigkeit, Produkte zu erhalten, Ihre Fähigkeit zum Versand und zur Lieferung – das sind normalerweise Dinge, die Sie für selbstverständlich halten können und in diesem Viertel kannst du nicht. Hier wird wirklich die Unsicherheit getrieben.

Operator

Ihre nächste Frage kommt von Stephen Ju von der Credit Suisse. Bitte fahren Sie mit Ihrer Frage fort.

Stephen Ju – – Credit Suisse – Analyst

Okay, danke Jungs. Also, Brian, ich denke, der Einheitenmix von Drittanbietern wurde in diesem Quartal ein wenig als Prozentsatz der Gesamtzahl deindiziert. Ich weiß, dass die Zahl ein wenig springt, aber dies ist in erster Linie eine Frage der eingeschränkten Lieferressourcen und ich Erraten Sie die gestiegene Nachfrage und jede Art von anhaltenden Bedenken in Bezug auf die Lieferkette, die für Sie entweder aus Sicht der Erstanbieter oder aus Sicht der Drittanbieter besorgniserregend bleiben. Thanks a lot.

Brian T. Olsavsky – – Senior Vice President und Finanzvorstand

For sure. I think there is still supply chain concerns on a lot of PPE not only that we use, but also that we sell to customers, things like masks. There is general availability, but still outages of things like cleaning wipes, masks, we talk about testing, but that’s not something that we resell, but, so there are a lot of supply chain concerns are mostly in those areas right now. I’m sorry, I forgot the other part of your question, can you remind me what you just — what the first question was?

Stephen Ju – – Credit Suisse — Analyst

Just the third-party unit mix de-indexing a little bit as a percentage of the total this quarter. I’m just wondering if that’s just normal fluctuations or are you just prioritizing the first-party delivery. I guess what’s probably limited delivery resources on the heightened demand.

Brian T. Olsavsky – – Senior Vice President and Chief Financial Officer

Yeah, thanks, Stephen. I would say that, yes, it’s a little — it’s a little off during this period, because its not so much we’re restricting and favoring 1P or anything, its we’re prioritizing essential items and a lot of those tend to be, especially in the consumable area, tend to be retail supplied items from vendors. So I would say that is the reason that FBA would have not have been as high as it normally would be. MFN is picking up a lot of the opportunity and sellers are taking that opportunity to ship direct because then it doesn’t have to come into our warehouse obviously.

So it’s a bit of a different type of 3P mix right now. We’re trying to minimize the impact on FBA sellers as we open up our warehouses as well. Many of them are also MFN or direct shippers to our customers. So it’s the ability to satisfy demand of our customers from our seller community has never been more important and we’re very grateful to our third-party sellers because they’ve been through a lot as well.

Stephen Ju – – Credit Suisse — Analyst

Thanks a lot.

Operator

Our final question comes from the line of John Blackledge with Cowen. Please proceed with your question.

John Blackledge – – Cowen — Analyst

Great, thanks. On advertising, the other revenue growth line accelerated. Could you just discuss how the advertising business performed in the first quarter and any color on how it’s trending in the second quarter if possible. And then in the release you indicated more — potentially more hiring above the 175,000 headcount additions. Any way to quantify and does this hiring replace kind of the seasonal hirings that you typically do at the end of the third quarter? Thanks a lot.

Brian T. Olsavsky – – Senior Vice President and Chief Financial Officer

Yeah, sure. Let me start with that second one, I don’t have more for you on that. I think we’ll announce as we change any thresholds on hiring, we’ll announce that at the time. Right now, we’ve fully hired 175,000 people that we had discussed prior. 80,000 of them were in place at the end of the quarter. So the other 95,000 have been hired in April. On advertising, what we’ve seen is it’s been a very strong quarter in ad revenue.

On your comment about other revenue accelerating, there’s some other things going on in that other revenue account, the majority is revenue, but there’s some other things, but I can tell you underneath is that advertising growth rate has stayed consistent with last quarter and we’re very happy with the progression of that, that offering for not only just sellers, authors, vendors and the positive impact it’s had on customer selection, but we did start to see some impact in March, some pullback from advertisers and some downward pressure on price, but advertisers have continued to advertise at a high clip.

It wasn’t as noticeable as maybe what some others are seeing and its probably offset a bit by the continued strong traffic we have to the site. So it’s a bit of a mixed bag. We have, again as I said, downward pressure a bit on pricing, but I think we have a large portion of our advertising relates to Amazon sales not things like travel and auto which off site which may have been disproportionately impacted at least early on here in the COVID crisis and I think our advertising will prove to be very efficient as well and can be directly measured. So even as people are cutting back perhaps on advertising or their costs, I think this will be one area that will prove its value and has in the past.

John Blackledge – – Cowen — Analyst

Great, thank you.

Dave Fildes – – Director of Investor Relations

Thanks for joining us today on the call and for your questions. A replay will be available on our Investor Relations website at least through the end of the quarter. We appreciate your interest in Amazon and look forward to talking with you again next quarter.

Duration: 40 minutes

Call participants:

Shelly Kay Pfeiffer – – Director of Investor Relations

Brian T. Olsavsky – – Senior Vice President and Chief Financial Officer

Dave Fildes – – Director of Investor Relations

Doug Anmuth – – J.P. Morgan — Analyst

Brian Nowak – – Morgan Stanley — Analyst

Mark Mahaney – – RBC Capital Markets — Analyst

Heath Terry – – Goldman Sachs — Analyst

Eric Sheridan – – UBS — Analyst

Justin Post – – Bank of America — Analyst

Stephen Ju – – Credit Suisse — Analyst

John Blackledge – – Cowen — Analyst

More AMZN analysis

All earnings call transcripts


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