NEW YORK: Amazon.com Inc plans to deliver packages to members of its loyalty club Prime in just one day, instead of two days, part of a spending ramp-up that might curb future profits after a blockbuster first-quarter.
Shares rose as much as 2 per cent in after-hours trade on Thursday on the faster shipping announcement for customers around the globe and as Amazon’s first-quarter profit trounced estimates thanks to soaring demand for its cloud and ad services.
Amazon will spend $800 million in the second-quarter on the goal.
The announcement adds pressure to rivals Walmart Inc and others already racing to keep pace with the speed and benefits of Amazon’s Prime program.
Amazon’s first-quarter net income more than doubled to $3.6 billion, while analysts were only expecting $2.4 billion, according to IBES data from Refinitiv.
Second-quarter operating income will be as much as $3.6 billion, but analysts had been expecting $4.2 billion, according to FactSet.
Chief Financial Officer Brian Olsavsky said Amazon was still reaping rewards from prior years of hiring and investments in warehouses and other infrastructure.
“We’re banking the efficiencies of prior investments, continued into Q1,” he said on a call with reporters. “There’ll be times when we have to invest ahead to build out warehouse capacity, but right now we are on a nice path where we are getting the most out of the capacity we have.”
Olsavsky also said earlier that the company would spend more later this year to roll out more benefits to international Prime members.
The news marks a familiar refrain for the world’s largest online retailer. For years, Amazon has made expensive bets on new technology and programs, like its $13.7 billion purchase of Whole Foods Market in 2017 to become a player in the US grocery business.
Amazon’s investments had long meant lower profit. However, its steady, often successful marches into new industries have been lucrative to shareholders, including its founder Jeff Bezos, who had become the richest man in the world.
The lustre of these bets still shined brightly on Thursday.
The company’s loyal customer base has drawn merchants to sell and increasingly advertise through its site in exchange for fees, helping Amazon transform from a largely low-margin retail business to a more and more lucrative marketplace.
Revenue from seller services jumped 20 per cent to $11.1 billion in the first quarter, while ad and other sales surged 34 per cent to $2.7 billion, the company said.
Meanwhile, Amazon’s cloud unit kept growing as more enterprises moved data and computing operations to the technology company’s servers. Sales for Amazon Web Services (AWS) rose 41 per cent to $7.7 billion in the first-quarter.
Some analysts noted that these growth figures, while impressive, were lower than what Amazon had posted in prior quarters.
“Amazon delivered slower growth in all key segments — AWS, advertising and e-commerce — but margins skyrocketed, seemingly driven by less aggressive investment,” said Atlantic Equities analyst James Cordwell.
The company has been building warehouses around the world to ensure its edge in delivering goods to customers the fastest. It is spending more on video, from live sports to a planned prequel series to “The Lord of the Rings,” to draw more people to log on to its website, watch, and while they are there, buy socks.
Hiring will pick up from the 12 per cent increase Amazon posted in the past 12 months, Olsavsky said.
— Reuters
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