Amazon CFO Warns Of A Dimmer Christmas, Even With Better Delivery

The coming holiday season — so important to retailers — promises to bring quicker deliveries to more consumers, more commerce-enabled homes and less revenue than expected for Amazon.

The eCommerce operator released its third quarter 2019 financials on Thursday afternoon (Oct. 24), and as always happens, it painted a picture of where online retail is, and where it’s headed.

First, some specifics: Amazon’s revenue increased 24 percent year over year in Q3, reaching some $70 billion, which beat analyst estimates of $68.8 billion. (The Q3 results include sales from Prime Day.) But investors didn’t take too kindly late Thursday to Amazon’s news that its fourth quarter revenue will come between $80 billion and $86.5 billion — analysts had expected Q4 revenue to hit $87.4 billion.

Amazon Chief Financial Officer Brian Olsavsky blamed a number of factors for that reduced Q4 guidance. Among them is the recent increase in Japan’s consumption tax, from 8 percent to 10 percent. The last time that happened, he told analysts on the post-earnings conference call, it also produced what he called a negative impact on Amazon’s sales.

Delivery Investment

The other big news from Amazon’s Q3 earnings is the continuing progress — and accumulating costs — of the company’s push to offer one-day delivery for Prime members. The initiative, launched earlier this year, has already cost Amazon some $800 million, and will cost some $1.5 billion more in Q4.

Those figures underscore the stakes involved in cementing even more customer loyalty via those quick deliveries, which the company expects to play a big part in the holiday shopping season. Already, Olsavsky said, the investment in one-day shipping is paying off, as the program helped spark the company’s Q3 revenue growth.

“We are very pleased with the customer reception to one-day shipping,” he told analysts. “You can see it in our revenue acceleration.”

He added that one-day delivery for now is mostly a U.S. program.

That said, analysts on the post-earnings conference call wanted to know how much of those one-day delivery costs were transitory and how much of those costs were structural.

The short answer, at least according to Olsavsky’s comments? It’s not totally clear yet. After all, Amazon is paying for more staffing and multiple shifts that enable later pull times, he said, along with new sorting centers and the other infrastructure needed to bring those quicker deliveries to more people. The company also has deployed more forward inventory, he said.

“We’re still learning [about] the one-day costs as we go, and what the long-term cost structure will be,” he said. “It’s a drastic change for the whole network.”

That said, the prospects are positive.

“One-day should help with holiday shopping,” Olsavsky told analysts.

In a way, this big, ongoing investment is a return to the Amazon of old, as the company sacrificed profits in order to build out its commerce, logistical and technological prowess. Investors seem to have noticed.

One-day delivery is not the only investment Amazon is making as the holidays approach. The company also intends to boost its advertising efforts, via hiring more sales professionals.

“We are chasing a large opportunity here,” Olsavsky said, “but it may be bumpy as we go along.”

Other Trends

Amazon’s Q3 results also provide fresh detail about its efforts to gain more power in the brick-and-mortar retail world. In this case, revenue for Amazon’s physical retail declined 1 percent, and stood at about $4.19 billion. Third-party seller services, meanwhile, increased 28 percent year over year, to some $13.2 billion. North American sales increased 24 percent in the third quarter compared to the same period last year, while international sales increased 21 percent.

Amazon also provided another detail that helps set expectations for the 2019 holiday shopping season. The company said as of the end of the third quarter — that is, Sept. 30 — “more than 85,000 smart home products from over 9,500 unique brands can be controlled with Alexa. There are hundreds of devices with Alexa built-in, including new products from brands like Fitbit, Sonos and Facebook,” according the company’s financial release.

Last year, Alexa played a meaningful role in Amazon’s holiday shopping results, and given the rise of both voice-active retail and homes that are increasingly enabled for commerce — trends well documented by PYMNTS — that looks certain to continue this year.

Delivery, though, seems to be the real area to watch, especially as concern grows about the impact of tariffs on the holiday shopping season. At last count, Amazon offered same-day and next-day delivery to at least 72 percent of the U.S. population, including almost all of the households (95 percent or more) in 16 of the wealthiest and most populated states and Washington, D.C. You can expect those numbers to keep increasing, giving Amazon competitors that much more to worry about.