Amazon's business tends to fluctuate between periods of extremely high spending and extreme profitability, and the company is now in the former. Amazon posted revenue in the third quarter this afternoon, boasting $ 70 billion in revenue and $ 2.1 billion in profits. While sales blew past analyst expectations, largely thanks to a record-setting Prime Day, profits came well below.
The culprit: higher shipping and other fulfillment costs Amazon is now in its quest to deliver more and more packages with higher frequency. The company said it spent nearly 50 percent more on shipping and fulfillment in the last three months than this time a year ago, up to $ 9.6 billion. This includes not only the cost of getting the packages to customers' doors through a variety of methods, but also the expansion ̵[ads1]1; on air, land and sea – in the logistics industry.
"We plan to make our 25th holiday the best ever for Prime customers – with millions of products available for free one day delivery," said Amazon CEO Jeff Bezos in a statement. “Customers love the move from Prime from two days to one day – they've already ordered billions of items with free one-day delivery this year. It is a great investment and it is the right long term decision for the customers. And although the opposite is the case, the fastest delivery rates generate the lowest carbon emissions because these products are sent from refill centers very close to the customer – it simply becomes impractical to use air or long ground routes. Big thanks to all the teams who helped deliver to customers this holiday. "
The company announced earlier this year that it would begin testing a shift from Prime two-day shipping to one-day shipping. It is on top of the existing services such as Prime Now, which offers same-day delivery of specific products in certain markets, and the delivery of groceries to whole foods, among many others that supply food and household goods. The company has also aggressively expanded its contract delivery service, Amazon Flex, and has even begun to explore robotic delivery on the ground. Drones for delivering the package of aircraft are also still in operation.
The company's saving grace continues to be Amazon Web Services, its cloud computing division that brought in $ 9 billion in sales, with nearly 40 percent of that corresponding to profits. Amazon also compensates for high expenses with sales of Echo units, sales from third-party Marketplace sellers and through the extension of the Prime membership subscription. Another important growth area for Amazon is the advertising division, which raised $ 3 billion in the last quarter.
But all of this, of course, is an interlocking system that depends on customers buying an increasing amount of products from Amazon, and the company believes that one day's shipping will give it an even tighter grip. After all, you are less likely to buy from a brick-and-mortar store if you can get a product on Amazon the same day or the day after, instead of waiting for two days.