Is Amazon’s speed killing the competition?
The numbers of customers using Prime’s one-day and same-day delivery more than quadrupled in the fourth quarter to help drive healthy holiday sales for Amazon.com.
“What we saw was essentially a very strong holiday performance from the middle of November on,” said Amazon’s CFO Brian Olsavsky on a conference call with analysts. “We also had a very big uptick in response to the one-day availability that’s been building through the year.”
In April, Amazon announced it was cutting its standard two-day delivery time for Prime members to a single day.
The one-day promise also supported the greatest increase in Amazon Prime members in a single quarter in the history of the program. Globally, Amazon now has over 150 million Prime members, up from 100 million last April. Member growth remains a critical metric because Prime members spend at more than twice the rate as non-members.
Further, one-day availability helped drive a 31 percent gain in seller services’ revenue. Mr. Olsavsky said third-party seller participation in one-day delivery “was particularly strong in Q4 and I think you’ll see that more as we move into 2020.”
For analysts, a surprise was that the costs of the shift to one-day shipping were less than the $1.5 billion Amazon expected, despite the surge in activity. Mr. Olsavsky said, “We get efficiencies as we learn and grow and handle more one-day volume.”
The costs of expedited delivery had been a concern. Stifel analysts wrote in a note, “We support where Amazon’s investment dollars are focused as we believe this better positions the company for continued market share gains and opportunity for greater margin expansion once the company emerges from the current investment cycle.”
Company wide, revenues climbed 21 percent and earnings of $6.47 a share, handily topping the consensus target of $4.04. A growth uptick in Amazon Web Services (AWS), which accounted for 67 percent of Amazon’s operating profit in the period, also drove the profit beat.
Among other major sources, sales online grew 15 percent, subscription services climbed 34 percent and physical stores dipped one percent.
Amazon’s strong holiday quarter comes as other retailers, including Target, Macy’s and J.C. Penney, have reported lower fourth-quarter sales despite strong growth in BOPIS.
- Amazon.com Announces Fourth Quarter Sales up 21% to $87.4 Billion – Amazon.com
- Amazon.com Inc. (AMZN) Q4 2019 Earnings Call Transcript – The Motley Fool
- Amazon one-day shipping is a hit with shoppers – and it cost less than the expected $1.5 billion – Advertising Age
- Amazon one-day shipping is a hit with shoppers – and it cost less than the expected $1.5 billion – Marketwatch
- Amazon profits surge as investment in faster shipping pays off – The Guardian
- Did Walmart just one-up Amazon on next day deliveries? – RetailWire
DISCUSSION QUESTIONS: Has success at executing one-day and same-day delivery become a significant competitive advantage for Amazon? Does the option offer more appeal during holiday selling season?