Free next-day shipping hits Amazon in its bottom line
Amazon.com doesn’t frequently report quarterly earnings that disappoint Wall Street, so yesterday’s announcement that the e-tail giant posted earnings of $4.23 a share in the third quarter, down from $5.75 last year, has investors taking notice. Amazon’s earnings miss is being tied to the company’s switch from free two-day shipping for Prime members to next-day delivery.
While some investors may be concerned — Amazon’s share price fell after the announcement — the company has often put market share gains ahead of short-term profitability in the past. Is Amazon looking to do the same with free next-day shipping? Will the amount of added business from existing Prime members plus the addition of new ones take sales away from rivals and put Amazon in an even stronger competitive position a year from now?
Amazon founder and CEO Jeff Bezos appears confident that free next-day delivery is the very edge his company needs to succeed heading into the Christmas selling season and beyond.
“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,” said Mr. Bezos 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.”
On the company’s earnings call yesterday with analysts, CFO Brian Olsavsky said the expense of moving to next-day delivery has been in line with Amazon’s expectations to date. He also expressed confidence that Amazon would perform well during the holiday season even though the company’s forecast for the fourth quarter was below analysts’ expectations.
“The ops team has really done yeoman’s work here to create this capacity for us and they continue to unlock additional capacity daily,” said Mr. Olsavsky (via Seeking Alpha). “We’re expecting that it will be a great help to customers in Q4. 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.
Amazon rivals Best Buy and Walmart have countered with next-day delivery programs of their own.
- Amazon.com Announces Third Quarter Sales up 24% to $70.0 Billion – Amazon.com, Inc.
- Amazon.com, Inc. (AMZN) on Q3 2019 Results (Earnings Call Transcript) – Seeking Alpha
- Best Buy is ready for Christmas with free next-day deliveries for almost everyone – RetailWire
DISCUSSION QUESTIONS: Do you think the math for free next-day delivery adds up to a win for Amazon in the short- or long-term? How do you expect free next-day delivery from Amazon, Best Buy and Walmart to affect their competitors large and small?