Amazon Posts Smaller-Than-Expected Increase in Profit -- 3rd Update
October 27 2016 - 7:58PM
Dow Jones News
By Laura Stevens
Amazon.com Inc. posted its lowest quarterly profit in a year as
it invested heavily to meet consumer demand for more orders
delivered faster.
The online retail giant said Thursday that opening new
warehouses and shipping items with shorter delivery times caused
its costs to soar in the third quarter. The company predicts heavy
investments will continue through the rest of the year. Amazon
opened 23 warehouses world-wide to fill orders since July, after
opening just three in the first half of the year.
Adding those warehouses "was a big undertaking," said Chief
Financial Officer Brian Olsavsky on a media call Thursday. But he
said it puts the retail giant in a good position to handle the
flood of holiday orders in the fourth quarter.
The company's shares fell more than 6% in after-hours trading on
concerns about the higher spending, as well as a holiday outlook
that fell short of expectations.
The results show "Amazon is still in investment mode, and the
Street should not necessarily expect linear growth in
profitability," said Robert W. Baird & Co. analyst Colin
Sebastian.
The company has been pushing its $99-a-year Prime membership
program to broaden its base of loyal shoppers who often spend
double their non-Prime counterparts on the site, analysts estimate.
Prime promises free, fast shipping on millions of items on its site
and access to video content and other perks. As the membership
grows, Amazon is getting more items to the front door in as fast as
an hour, increasing its shipping costs 43% in the third quarter to
$3.9 billion.
"We acknowledge that's expensive," Mr. Olsavsky said. But
"customers love it."
The retail giant has started laying the groundwork for its own
shipping business to add more delivery capacity for the holidays,
with the grander ambition of one day hauling and delivering
packages for itself, other retailers and consumers, according to
people familiar with the matter.
It is leasing 40 planes to carry goods and buying branded truck
trailers, but the investments it is making to build its own
logistics operations generally break even or save on costs, Mr.
Olsavsky said. "We want to control our own destiny," he added.
Amazon accelerated its investments in its own transportation
capabilities after the major delivery carriers during the 2013
holiday season failed to deliver all its orders in time.
This year, Amazon has added delivery capabilities of its own, as
well as arranging capacity with its partners, Mr. Olsavsky said on
an analyst call.
Amazon also is shipping more units because it has expanded a
program to handle third-party seller merchandise, Fulfillment by
Amazon. The company has been adding warehouses in part to
accommodate that increase.
The quarter marked Amazon's sixth consecutive of profit after
seesawing in and out of the black since its stock market listing
nearly 20 years ago, despite reporting robust sales increases.
In all, its earnings rose to $252 million in the third quarter,
or 52 cents a share, from $79 million, or 17 cents a share, a year
earlier. Analysts surveyed by Thomson Reuters expected earnings of
78 cents a share.
Sales of $32.7 billion were nearly eclipsed by operating
expenses which climbed 29% to $32.1 billion. The investments caused
Amazon's operating margin to come in at 1.8%, below the second
quarter's 4.2%.
Other areas where Amazon significantly increased its spending
include promoting its video content. It is also building out teams
for its Amazon Web Services cloud-computing division, and its Echo
speaker device and Alexa artificial-intelligence assistant, as well
as investing in its operations in India.
AWS, which has become a major factor in Amazon's profitability,
increased sales by 55% to $3.23 billion. Chief Executive Jeff Bezos
has said he expects AWS, which rents computing power to a variety
of startups, government agencies and other corporations, to reach
$10 billion in sales this year, even amid competition from
Microsoft Corp. and Alphabet Inc.
Amazon issued revenue guidance of $42 billion to $45.5 billion
for the fourth quarter, when holiday sales -- and its ability to
deliver those orders on time -- are critical to its success.
Analysts were looking for $44.6 billion, according to Thomson
Reuters.
Amazon reported a loss of $541 million for its international
segment, steeper than its loss of $208 million a year ago. On the
conference call with analysts, Mr. Olsavsky attributed that to
spending on expansion, including in India, something that should
continue into the fourth quarter. "By far, the biggest individual
thing [affecting margins] is the investment that we continue to
make," he added.
Write to Laura Stevens at laura.stevens@wsj.com
(END) Dow Jones Newswires
October 27, 2016 19:43 ET (23:43 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Amazon.com (NASDAQ:AMZN)
Historical Stock Chart
From Mar 2024 to Apr 2024
Amazon.com (NASDAQ:AMZN)
Historical Stock Chart
From Apr 2023 to Apr 2024