Amazon’s business tends to oscillate between periods of extreme high-spending and extreme profitability, and the company is now fully in the former. Amazon posted third quarter earnings this afternoon, boasting sales of $70 billion and profit of $2.1 billion. While sales blew past analyst expectations, thanks largely to a record-setting Prime Day, the profit came in far under.
The culprit: higher shipping and other fulfillment costs Amazon is now incurring in its quest to deliver ever more packages at higher frequency. The company said it spent nearly 50 percent more on shipping and fulfillment in the last three months than this time a year ago, up to $9.6 billion. That includes not just the cost of getting the packages to the customers’ doors through a variety of methods, but also its expansion – on air, land, and sea — in the logistics business.
“We are ramping up to make our 25th holiday season the best ever for Prime customers — with millions of products available for free one-day delivery,” said Amazon CEO Jeff Bezos in a statement. “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. And although it’s counterintuitive, the fastest delivery speeds generate the least carbon emissions because these products ship from fulfillment centers very close to the customer — it simply becomes impractical to use air or long ground routes. Huge thanks to all the teams helping deliver for customers this holiday.”
The company announced earlier this year that it would start testing a shift from Prime two-day shipping to one-day shipping. That’s on top of its existing services like Prime Now, which offers same-day shipping of certain products in certain markets, and Whole Foods grocery delivery, among many others spanning food and household item delivery. The company has also been aggressively building out its contract delivery service, Amazon Flex, and even started exploring robotic ground delivery. Drones for package delivery by air are also still in the works.
The company’s saving grace continues to be Amazon Web Services, its cloud computing division that brought in $9 billion in sales, with nearly 40 percent of that translating to profit. Amazon also makes up for high spending with sales of its Echo devices, sales from third-party Marketplace sellers, and through expansion of its Prime membership subscription. Another important growth area for Amazon is its ads division, which pulled in $3 billion this past quarter.
But of course, all of that is an interlocking system that depends on customers buying an increasing amount of products from Amazon, and the company thinks one-day shipping will give it an even tighter grip. After all, you’re less likely to buy from a brick-and-mortar store if you can get a product on Amazon the same day or the following day, rather than waiting two days.