Inside Logistics

Amazon takes a bottom line hit on faster shipping

One-day delivery promise cost twice what was expected


October 25, 2019
by Joseph Pisani THE ASSOCIATED PRESS

Adding workers and transportation assets to meet the new delivery standard is costing Amazon more than US$1.5 billion.

NEW YORK – Amazon’s push for faster delivery is hurting its profit

The online retailer said its third-quarter net income fell 26 percent from a year ago, missing Wall Street expectations. Its sales outlook for the holiday shopping season also disappointed analysts, and its stock sank seven percent in after-hours trading.

Amazon is moving to cut its delivery time in half to one day instead of two. To do that, it’s adding more workers in its warehouses and expanding its shipping network with more trucks, jets and package sorting facilities.

The effort is expected to cost the company an additional $1.5 billion in the fourth quarter, nearly double what it spent in the second quarter. But Amazon said the one-day shipping is attracting more customers and gets shoppers to spend more.

“It’s a big investment,” said Amazon CEO Jeff Bezos, in a statement. “And it’s the right long-term decision for customers.”

The Seattle-based company reported net income of $2.1 billion in the three months ending Sept. 30, down from $2.9 billion a year ago.

Earnings per share came to $4.23. That’s 36 cents less than what analysts expected, according to FactSet.

The company, which used to report razor-thin profits, has seen its quarterly profits grow in the past two years as it expanded into fast-growing businesses, such as cloud computing and advertising.

Sales at its cloud computing business, which powers video-streaming service Netflix and other companies, rose 35 percent from a year ago. And revenue in its “other” category, which the company said is mostly made up of its advertising business, jumped 44 percent.

But as Amazon grows it faces increasing scrutiny from regulators. The Justice Department opened an antitrust investigation of major tech companies and whether their platforms have hurt competition and stifled innovation. The department didn’t name any companies, but it said online retailers were an area of “widespread concern.” And the European Union is investigating how Amazon uses data from the small businesses that sell goods on its site.

On Thursday during a call with reporters, Amazon executives declined to answer any questions about regulation.

“I have nothing to report on that,” said Chief Financial Officer Brian Olsavsky.

Revenue for the quarter beat expectations, rising 24 percent to $70 billion. The third quarter included Amazon’s made-up sales holiday “Prime Day,” which has become one of the company’s biggest shopping events of the year.

Amazon also saw a jump in headcount. It had 750,000 worldwide employees at the end of September, up nearly 100,000 from the previous three months. Besides adding workers in its warehouses to pack and ship boxes, the company said it’s been hiring more software engineers and salespeople for its cloud business. Amazon is the second-biggest U.S.-based private employer, just behind rival Walmart.

For the current quarter, which includes the holiday shopping season, Amazon expects revenue between $80 billion and $86.5 billion. That’s below the $87.4 billion analysts expected.