For the first time in two years, Amazon missed out on earnings expectations, according to figures released on Thursday. The Group reported that revenues had plummeted in the current quarter, pointing to higher costs associated with the introduction of same-day deliveries.
The Seattle-based company has attracted over 100 million paying members through its loyalty club Prime, which offers its own TV shows, various gadgets with language assistant Alexa, and fast delivery options for numerous items, including groceries through the Whole Foods Market outlet.
Now, Amazon is investing heavily in reducing its delivery times to provide prime-time, same-day deliveries to Prime members, while keeping ahead of rivals such as Walmart, which has introduced a two-day delivery with no membership fees.
CEO Jeff Bezos told the media that the company’s revenue growth continued to increase and also talked about the same-day delivery project. The cost of the program exceeded Amazon’s estimate of $ 800 million (EUR 718 million) in the second quarter, CFO Brian Olsavsky said at a telephone press conference.
“At the moment, we are seeing rising costs, which we have also included in our third quarter revenue planning,” said the CFO. He said the company would continue to work on introducing same-day delivery in North America and Europe in the coming quarters.
Sales of the world’s largest online retailer increased 20 percent to $ 63.4 billion in the second quarter of the fiscal year (€ 56.9 billion). According to IBER data from Refinitiv, analysts had previously anticipated sales of USD 62.5 billion (EUR 56.1 billion). After the stock market, the stock market value of the shares fell by more than 2 percent.
The huge sums that Amazon is paying for this delivery option are testament to Managing Director of research firm GlobalData, Neil Saunders, that the company is not untouchable in competition.
“It’s a necessary evil,” Saunders says. “Amazon exists in a world where many merchants have the advantage of being able to offer their customers a same-day pick-up service in their own stores.” These competitors have a much wider store network than Amazon with the Whole Foods branch.
The US Department of Justice said on Tuesday it wanted to investigate whether the company was taking anti-competitive behavior, including online trading. CFO Brian Olsavsky did not comment on this issue.
While Amazon’s revenue growth was lower than it was a year ago, it reflects the fundamental change in Amazon’s business. The company moves away from low-margin retail to a marketplace model where it collects lucrative fees from other merchants for accessing the portal and promoting its products.
Revenues from services to other traders rose 23 percent to $ 12 billion ($ 11 billion) in the second quarter, and $ 3 billion ($ 2.7 billion) in advertising and other sales – 37 percent more than in the comparative period.
Although the company is profitable – Amazon earned USD 2.6 billion (EUR 2.3 billion) in the second quarter, with analysts expecting USD 2.8 billion (EUR 2.5 billion) Marketplace business model closely watched.
At the beginning of the month, the European Commission launched a process to assess whether Amazon’s use of Amazon’s other merchant’s data gives its commercial unit an unfair advantage, as it makes its own brand alternative versions of popular products.
In the cloud business of Amazon, the company reported a slight slowdown in the incredible growth of recent years. The revenue comes from companies that pay Amazon to store their data and handle their computing operations. Amazon Web Services sales increased 37 percent to $ 8.4 billion in the second quarter (€ 7.5 billion). Since 2015, this value has systematically exceeded 40 percent.
CFO Brian Olsavsky explained that sales had been good in the past quarter, but sales cycles varied according to customer migration time. On a dollar basis, Amazon is growing “faster than anyone else,” said the CFO.
But that was not enough to offset the increase in investment planned for the year. In addition to faster delivery, the company again expected spending to prepare for the Christmas business in the current quarter.
Amazon also focused on specific marketing campaigns to boost sales. This includes a concert with pop star Taylor Swift as part of Prime Day, the summer sale of the portal.
These investments and similar actions, which are planned in the future – such as investments in manufacturers of electric and self-driving vehicles – show how effortlessly Amazon foregoes short-term profits in order to prepare long-term profits.
For years, the company was known for its roller coaster-like results. The rise of the profitable clou