Amazon.com Inc. posted its lowest quarterly profit in a year as it invested heavily to meet consumer demand for more orders delivered faster.
The online retail giant said Thursday that opening new warehouses and shipping items with shorter delivery times caused its costs to soar in the third quarter. The company predicts heavy investments will continue through the rest of the year. Amazon opened 23 warehouses world-wide to fill orders since July, after opening just three in the first half of the year.
Adding those warehouses “was a big undertaking,” said Chief Financial Officer Brian Olsavsky on a media call Thursday. But he said it puts the retail giant in a good position to handle the flood of holiday orders in the fourth quarter.
The company’s shares fell more than 6% in after-hours trading on concerns about the higher spending, as well as a holiday outlook that fell short of expectations.
The results show “Amazon is still in investment mode, and the Street should not necessarily expect linear growth in profitability,” said Robert W. Baird & Co. analyst Colin Sebastian.
The company has been pushing its $99-a-year Prime membership program to broaden its base of loyal shoppers who often spend double their non-Prime counterparts on the site, analysts estimate. Prime promises free, fast shipping on millions of items on its site and access to video content and other perks. As the membership grows, Amazon is getting more items to the front door in as fast as an hour, increasing its shipping costs 43% in the third quarter to $3.9 billion.
“We acknowledge that’s expensive,” Mr. Olsavsky said. But “customers love it.”
The retail giant has started laying the groundwork for its own shipping business to add more delivery capacity for the holidays, with the grander ambition of one day hauling and delivering packages for itself, other retailers and consumers, according to people familiar with the matter.
It is leasing 40 planes to carry goods and buying branded truck trailers, but the investments it is making to build its own logistics operations generally break even or save on costs, Mr. Olsavsky said. “We want to control our own destiny,” he added.
Amazon accelerated its investments in its own transportation capabilities after the major delivery carriers during the 2013 holiday season failed to deliver all its orders in time.
This year, Amazon has added delivery capabilities of its own, as well as arranging capacity with its partners, Mr. Olsavsky said on an analyst call.
Amazon also is shipping more units because it has expanded a program to handle third-party seller merchandise, Fulfillment by Amazon. The company has been adding warehouses in part to accommodate that increase.
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