With so much going its way already, one might wonder why Amazon.com keeps bothering with Prime Day. The answer is that it seems to have become a profitable endeavor.
That isn’t so apparent on the face of it. Amazon has long used major events to boost sales at the expense of the bottom line. And Prime Day is replete with cut-rate deals for Prime members that hardly seem profitable on their own. For instance, the latest two-day affair that ended Oct. 14 featured price reductions of nearly 25% on the mega-popular AirPods from Apple Inc. —which rarely, if ever, makes such cuts on its own.
Indeed, Amazon’s North American and International retail segments showed a combined operating loss for the quarter including Prime Day for the first three years after Amazon created the pseudo-holiday in 2015, even as other quarters were generally profitable.
That has changed as the company’s third-party business has grown. Amazon recognizes only a portion of the revenue generated by sales of its third-party merchants. But the margins on such revenue are higher than on its own retail sales, as Amazon isn’t bearing the cost of purchasing the goods itself. And the recent Prime Day seems to have been a big one for the third-party business. Amazon said Prime Day sales from third-party merchants surpassed the $3.5 billion mark—up nearly 60% from last year’s event.
That still doesn’t spell out the revenue Amazon will recognize on those sales. A more accurate read on the effect of Prime Day will likely come with the company’s third-quarter results, scheduled for Oct. 29. Those results will include a projection for operating earnings for the fourth quarter that includes this year’s Prime Day.