Amazon’s push for faster delivery is hurting its profits

Amazon's quarterly profit has declined year-over-year (YoY). Amazon said its net income declined 26% from a year ago in the third quarter, taking a toll on Wall Street expectations. Not just that, analysts seem disappointed with Amazon's sales performance during the festive shopping season while the company's after-hours stock trading saw a 7 per cent decline. 

Amazon's push for faster deliveries

Apparently, Amazon's push for faster deliveries is resulting in an extra burden on the company expenditure. While Amazon is moving to cut its delivery time in half to one day instead of two, at the same time, the company is also adding more workers in its warehouses, further expanding its shipping network with more trucks, jets and package sorting facilities. In a nutshell, all of this is costing Amazon about $1.5 billion, almost double than what it previously said would cost.

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Amazon 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 also came down drastically to $4.23. That’s 36 cents less than what analysts expected, according to FactSet.

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.”

Amazon has seen its quarterly profits grow in the past two years as it expanded into fast-growing businesses like cloud computing and advertising. Amazon's cloud computing business rise 32 per cent from a year ago. It should be worth noting that Amazon's cloud computing business powers Netflix's video streaming service. Amazon's revenue in its “other” category, which is mostly made up of its advertising business, jumped 44%.

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However, revenue for the quarter beat expectations, witnessing 24 per cent increase 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. 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.

(With AP inputs)