Amazon Takes A Hit With One-Day Shipping but Investors Optimistic

This past week, Amazon Inc reported an earnings miss for the third quarter, but analysts appear to be confident that the shortfall is merely a consequence of growth. 

As such, Amazon shares fell 2.1 percent on Friday after releasing their results. This follows Thursday’s dramatic after-hours drop of nearly 10 percent.  Shares hovered around $1,760 on Friday. 

According to Amazon chief financial officer, Brian Oslavsky, the company surpassed the $800 million they had allocated for the second quarter in order to ensure their one-day shipping guarantee and to put in place a large investment in Q3.  And more costs are on the way. 

In a statement, Oslavsky commented, “So, as we head into Q4 we’ve added what’s just nearly a $1.5 billion penalty in Q4 year-over-year for the cost of shipping, which essentially is transportation costs, the cost of expanding our transportation capacity, things like adding additional roles and shifts in our warehouses.”

And this “penalty” as he calls it, has been worthy investment. 

He goes on to say, “We’re very pleased with the customer response to one-day. You can see it in our revenue acceleration and also in our unit growth acceleration.”

That said, Oslvasky notes that perk has been quite the value for Prime members, who pay $119 per year for their memberships.  He adds, “We have seen Prime members increase their orders, spend more. So they must also see it as a real help to them in their daily lives.”

This points seems to be a critical notion for investments and analysts, all of whom argue Amazon’s third-quarter investment in providing a superior online shopping experience through speedy delivery is a major driver in their success.  As a matter of fact, this particular aspect has pushed growth rate faster than any quarter in the past two years.  As such, it is quite apparent that Amazon is holding court to position itself at the front of the industry, even if that means sacrificing a little share value on the way. 

In summary, Amazon reported a net income of $2.1 billion—about $4.23 per share—for the third quarter. This is 36 cents per share lower than what analysts had expected.  However, revenue bested expectations in the quarter, up 40 percent to $70 billion.