Trending: Company backed by Bill Gates claims solar breakthrough, looks to replace fossil fuels in industrial plants
(GeekWire Photo)

Update: See additional Amazon earnings coverage here:

Shares of Amazon fell more than 8 percent in after-hours trading after the company missed profit expectations for the second straight quarter. The Seattle tech giant is spending heavily on increasing delivery capacity as it shifts from two- to one-day shipping as a core Amazon Prime benefit.

“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,” Amazon CEO Jeff Bezos said 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.”

On a call with reporters, Amazon CFO Brian Olsavsky said that he expects costs from the 1-day initiative to reach around $1.5 billion in the fourth quarter — that’s nearly double the $800 million spent in Q2.

Charlie O’Shea, an Amazon analyst with Moody’s, said that “we continue with our view that Amazon’s robust liquidity, with over $42 billion in cash and short-term investments, as well as AWS’ steady $2.3+ billion in operating income per quarter, provides the company with significant runway to continue with its myriad, necessary investments.”

Revenue: Amazon posted $70 billion in revenue, up 24 percent from the year-ago quarter. Analysts expected $68.8 billion. This quarter included Prime Day, Amazon’s big shopping extravaganza.

Profit: Amazon reported earnings per share of $4.23, missing expectations of $4.62, and down from $5.75 last year. Operating income of $3.2 billion was just above the company’s projections.

Stock: Amazon stock reached record highs in July but has dipped in the past three months. Shares are still up 15 percent this year, trading at around $1,781 on Thursday before the market closed.

Outlook: Amazon expects Q3 sales between $80 billion and $86.5 billion, up 11 to 20 percent year-over-year. Operating income is projected at $1.2 billion to $2.9 billion, down from $3.8 billion in Q4 2018.

Amazon Web Services: Amazon’s cloud business was up 27 percent at $9 billion, with $2.3 billion in operating income, continuing to help drive Amazon’s profits, though overall growth is slowing. Both AWS revenue and profit missed expectations.

Advertising: The company’s growing advertising arm doesn’t have its own category and is listed under a category called “Other.” That category brought in $3.6 billion in revenue in the quarter, up 44 percent over a year ago.

Physical stores: Amazon posted a loss of 1 percent to $4.2 billion. The category includes Whole Foods and Amazon Go stores.

Headcount: Amazon now employs a whopping 750,000 people, up 22 percent year-over-year.

Prime: Subscription services revenue, which includes Prime memberships, came in at $5 billion, up 34 percent. Amazon said it had more than 100 million Prime members in April 2018; it has not provided an updated number since then. A report in July from Consumer Intelligence Research Partners said Amazon had 95 million U.S. Prime members, with year-over-year membership growth slowing.

Shipping costs: Amazon’s shipping costs have ballooned in recent years as the company aims to speed up delivery. During Q3, Amazon spent $9.6 billion on shipping, up 46 percent. In 2018, Amazon spent $27.7 billion on shipping, an increase of $6 billion or roughly 27.6 percent over the prior year, according to GeekWire research. The company announced the one-day shipping initiative in April.

MORE: Amazon will spend nearly $1.5B in Q4 for one-day delivery initiative as shipping costs skyrocket

Like what you're reading? Subscribe to GeekWire's free newsletters to catch every headline

Comments

Job Listings on GeekWork

Find more jobs on GeekWork. Employers, post a job here.