Amazon earnings fail to deliver because of delivery costs
Fulfillment costs jump as e-commerce giant seeks to ship goods faster
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Amazon.com Inc. spent more than $4.5 billion in the fourth quarter to fulfill customers’ orders.
Amazon.com Inc.’s quest to deliver customers’ purchases faster drove the e-commerce giant to an earnings miss that sent its stock plummeting in after-hours action Thursday.
The stock was trading down 10.6% in premarket trade Friday.
Amazon, with earnings of $1 a share and sales of $35.7 billion. Those results were not as strong as analysts expected, however, with profit especially low; the average forecast, according to FactSet, was for profit of $1.55 a share on sales of $35.9 billion.
Profit was held back by a big jump in fulfillment costs, which increased 32.8% year-over-year in the fourth quarter and nearly 25% for the full year. Amazon spent $4.55 billion in the fourth quarter to fulfill customers’ orders, up from $3.4 billion in the same quarter a year ago, and the increase cannot be explained away by increases in Amazon sales, as the percentage of revenues spent on shipping also increased, from 11.6% to 12.7%.
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Amazon offers members of its Prime program, which costs $99 a year, free two-day shipping on all orders, and said Thursday that Prime membership increased 51% in 2015. As well, the company said that third-party sellers on its platform are increasingly relying on Amazon to fulfill their orders, with nearly 50% of third-party sales packaged and delivered by Amazon, more than 1 billion units.
Amazon is also building out its own delivery services, including Prime Now, a program that promises delivery in as little as an hour in certain major cities.
“Delivering for free in two hours is hard and expensive, but customers love it,” Chief Financial Officer Brian Olsavsky said on a conference call Thursday.