Amazon’s same day delivery push claims profit chunk

Amazon Inc. has reported its first loss in two years and has projected an income slump in the first financial quarter, Reuters reported. The profit miss has come at a time when the online retailing giant is spending heavily on its same day delivery model to ramp up sales growth.

The company has also said that its investment in same day delivery and faster shipping was starting to pay off, with revenues rising by 20% to US$63.4 billion in the second FY quarter that ended in June. The 20% revenue boost has surpassed the estimates and a 17% growth rate was posted by Amazon in April.

Amazon Chief Financial Officer Brian Olsavsky was quoted as saying by the Reuters: “The cost slightly exceeded the USD 800 million which Amazon had forecasted it would spend on the initiative in the second quarter. Right now, we are seeing an increasing and ramping cost penalty, and that’s what’s built into the Q3 guidance.”

Olsavsky added that most of the work to roll out same day delivery outside the United States lies ahead for the company. The company is investing heavily to reduce the delivery time by half to one day for its Prime members in a race with rivals such as Walmart Inc. that offers two-day shipping without any subscription fees.

Amazon’s profit inched up to USD 2.6 billion in the quarter, short of USD 2.8 billion that analysts were expecting, according to IBES data from Refinitiv. Operating expenses had jumped about 21%.

It was also reported that sales growth for Amazon’s cloud unit fell below 40% for the first time in years. The unit, which handles data storage and computing operations for other enterprises, raked in USD 8.4 billion in revenue in the second quarter, or 37% more than the year prior. Nascent competitor Google on Thursday reported a doubling of cloud revenue to about US$2 billion, from its last disclosure of USD 1 billion.

Olsavsky backed that Amazon Web Services’ revenue was strong, though sales cycles fluctuate depending on the timing of customers’ migration to the cloud. “We’re growing faster than anyone, on a dollar basis,” he said.

Leave a Reply

Your email address will not be published. Required fields are marked *