retail news in context, analysis with attitude

Amazon yesterday announced Q2 profit of $2.6 billion, up four percent over the same period a year ago but lower than analysts expected, a result at least in part because the company invested $800 million in shifting Prime membership from a two-day-delivery model to one day.

Sales for the quarter were $63.4 billion, up 20 percent from the same period last year.

The New York Times quotes CFO Brian Olsavsky as saying that “the costs for the rapid delivery were higher than he had anticipated. Productivity was ‘a bit off’ in Amazon’s vast fulfillment network as the company expanded its ability to ship more products in a day.”

However, in the long run this probably is a good thing. “Millions more one-day packages went out this quarter than last,” Olsavsky said. “Customers are responding, and they like it.”

Amazon also said that subscription services, like revenue from Prime memberships, gained 37% to $4.67 billion.

Bloomberg notes that “while e-commerce remains Amazon’s biggest source of sales, other businesses such as cloud-computing, logistics for online merchants and advertising are growing faster and now generate almost half of the company’s quarterly revenue. The internet business is facing greater competition from rivals such as Walmart and under greater scrutiny from government antitrust regulators and lawmakers who argue Amazon acts like a monopoly to dominate the field.”
KC's View:
Nobody should be surprised that Amazon is willing to accept lower profits as it invests in a program that it believes will better serve its customers and give it a distinct differential advantage in the marketplace.

Essentially, that’s always been the Amazon playbook. I’m sure they’ll continue investing in one-day delivery until they get bit right, and then they’ll move on to guaranteed 12-hour delivery, or eight-hour delivery, or using Star Trek-style replicators. Profits, Jeff Bezos seems to believe, and there to be invested.