Amazon.com Inc (AMZN.O) on Thursday reported its first profit miss in two years and said income would slump in the current quarter, as the online retailer ramps up spending on one-day delivery to spark sales growth.
The company also said its investment in faster shipping was starting to pay off, with revenue rising 20% to $63.4 billion (£50.9 billion) in the second quarter ended in June. That topped analysts’ estimates and the 17% rate of growth that Amazon posted in April.
Shares fell more than 1% in after-hours trade.
Seattle-based Amazon has drawn more than 100 million paid subscribers to its loyalty club Prime by releasing original TV shows, equipping more gadgets with its voice assistant Alexa and offering quick shipping for countless goods, including groceries from its subsidiary Whole Foods Market.
Now, it is investing heavily to halve delivery times to one day for Prime members, to stay ahead of rivals such as Walmart Inc (WMT.N) that have marketed two-day shipping without subscription fees. So far Amazon has expanded one-day delivery to more than 10 million items, a fraction of the 100 million-plus goods it offers in two days in the United States.
The cost slightly exceeded the $800 million Amazon had forecast it would spend on the initiative in the second quarter, Chief Financial Officer Brian Olsavsky said on a call with reporters. (Graphic: tmsnrt.rs/2y7OGJN)
“Right now we are seeing an increasing and ramping cost penalty, and that’s what’s built into the Q3 guidance,” Olsavsky said, adding that most of the work to roll out single-day delivery outside the United States lies ahead of the company.
Amazon’s profit inched up to $2.6 billion in the quarter, short of $2.8 billion that analysts were expecting, according to IBES data from Refinitiv. Operating expenses had jumped about 21%.
The money Amazon is sinking into delivery shows how the world’s largest online retailer is not immune to competition, said Neil Saunders, managing director at research firm GlobalData.
“It is a necessary evil,” Saunders said. “Amazon exists in a world where a lot of retailers have the advantage of allowing customers to pick things up the same day in stores,” with far larger brick-and-mortar footprints than Amazon can boast.
