Push for faster delivery expected to hurt Amazon's holiday profits
Amazon's push for ever-faster delivery is expected to hurt its revenue and profit over the crucial holiday season, as the online retailer invests in lightning-fast service to retain its edge over competitors. The e-commerce giant on Thursday forecast fourth quarter revenue and profit that missed analysts' projections — sinking its stock 9% in after-hours trading that evening and sending it down more than 1% Friday to about $1,761 a share.
Amazon is aggressively moving to cut its delivery time in half, to one day instead of two, for Prime members who pay $119 a year. The company has said the change will be costlier than it had anticipated — still, it insists it's committed to making the investment in order to outpace competitors like Walmart, which offers free two-day shipping without a membership.
Seattle-based Amazon reported net income of $2.1 billion, or $4.23 per share, in the third quarter. That's 36 cents per share below analysts' expectations, according to FactSet. Revenue beat expectations, however, rising a whopping 24% to $70 billion for the three months ended September 30.
"Amazon's strategically-necessary investments in next-day delivery continued to weigh heavily on its retail profitability," said Moody's Amazon analyst Charlie O'Shea.
"Based on guidance for Q4, it is clear that Amazon will continue to invest heavily in its delivery initiative to support its retail business in the face of intense competition from brick-and-mortar retailers," O'Shea said. The company's investments are "not leaving much room for potential retail profitability" in the near-term, he added.
Amazon founder and chief executive Jeff Bezos risked losing his perch atop the list of the world's richest people as shares of his company's stock tumbled following a gloomy holiday earnings forecast. But Bezos insists the company's strategy will pay off in the long-run.
"Customers love the transition of Prime from two days to one day — they've already ordered billions of items with free one-day delivery this year. It's a big investment, and it's the right long-term decision for customers," he said in a press release Thursday.
Fast delivery is among the perks included in a Prime membership, and has helped Amazon draw more than 100 million loyalists. Other perks include television streaming and discounts at Amazon-owned Whole Foods Market.
