Tuesday September 24, 2019
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Amazon Plans to Deliver Packages to Prime Members in One-Day Around the Globe

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

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An Amazon Prime Truck is on the Road in Virginia, transporting thousands of items ordered from online giant Amazon. (D Bekheet/VOA)

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% 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.

amazon, one-day delivery
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. VOA

“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.

Investments mean lower profits

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 U.S. 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 luster 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.

amazon, one-day delivery
Chief Financial Officer Brian Olsavsky said Amazon was still reaping rewards from prior years of hiring and investments in warehouses and other infrastructure. VOA

Revenue from seller services jumped 20% to $11.1 billion in the first quarter, while ad and other sales surged 34% 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% to $7.7 billion in the first quarter.

More hiring, spending to come

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.

Amazon suggested that spending indeed was on the way, and with that smaller growth in profit.

‘Lord of the Rings’ prequel

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 percent increase Amazon posted in the past 12 months, Olsavsky said.

amazon, one-day delivery
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. VOA

And the company is delving into even less familiar terrain.

It recently announced investments in self-driving and electric car companies, teasing how it thinks these high-tech, capital-intensive businesses could pay dividends potentially in the form of autonomous deliveries in the long run. Amazon has not described in detail its thinking behind the bets.

In China, where the company had long struggled to compete with Alibaba Group Holding Ltd, Amazon said this month it would close warehouses and its domestic marketplace in July. There were silver linings for investors, however. Amazon’s Olsavsky said the company saw no material impact in India from actions the company took to comply with new regulations there affecting foreign investment in the e-commerce sector, something Amazon had voiced concern about in the past.

Prime signups on rise in India

Prime member signups in India, one of Amazon’s most important growth markets, continue to be rising the fastest in the company’s history.

ALSO READ: Amazon Verifying Drivers’ Identity Using Facial Recognition

Bezos, who many regard as a management guru, also settled his closely watched divorce such that he will retain full voting control of his family’s stock, sparing Amazon a boardroom battle. However, his fortune, which has been the largest of any married couple in the world, will be divided.

The company forecast net sales of between $59.5 billion and $63.5 billion for the second quarter, the midpoint of which was below analysts’ average estimate of $62.37 billion, according to IBES data from Refinitiv. (VOA)

Next Story

Festival Sales by Amazon, Flipkart Violating FDI Norms

“Such festive sales offering deep discounts are nothing but influencing the prices directly or indirectly which is a clear violation of the policy,” it said

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The Amazon warehouse in San Fernando de Henares is seen during a 3-day walkout to demand better wages and working conditions, on the outskirts of Madrid, Spain. VOA

Reiterating its demand for ban on festival sales by Amazon and Flipkart, the Confederation of All India Traders (CAIT) on Tuesday said that the two e-commerce majors are flouting the norms for foreign direct investment (FDI) by carrying out festival sales.

The traders’ body urged the Commerce Minister to look into the violation of the FDI policy by these e-commerce companies and impose a ban on the declared festival sales. It also urged the government to institute an investigation into the business models of these companies.

“Holding such sales and offering deep discounts are clear violations of Press Note No.2 of FDI policy 2018. The CAIT has earlier written to Union Commerce Minister Piyush Goyal to ban the declared festival sales by these e-commerce portals,” a CAIT statement said.

“CAIT Secretary General Praveen Khandelwal strongly opposed the statements of Amazon and Flipkart that appeared in media couple of days back that they empower the sellers on their respective platforms to decide the prices and offer their choice of selection to customers at the prices they deem fit and offer best value of their products to consumers.

“The said statement of both the companies are devoid of any logic and just an eye wash to keep right the wrong practices they are conducting on their platform,” it said.

Flipkart Buys Back Shares Worth $350 mn.
New e-commerce norms to impact e-tailers: Flipkart. IANS

Khandelwal also said that these companies are indulging in blatant violation of the FDI policy of the Centre. CAIT noted that the key provisions of the FDI policy say that 100 per cent FDI is allowed in the e-commerce marketplace model and under which e-commerce companies can act only act as technical platforms.

The policy clearly says that e-commerce entities will not influence the prices directly or indirectly and shall maintain a level playing field, the statement said.

Also Read: Reliance Jio to be Among Top 100 Brands in 3 Years: Report

“Since these e-commerce companies are not owners of the inventory how can they offer deep discounts on the inventory hold by the sellers registered on their platform. As per policy, it should be the seller offering discounts but in this case the discounts are offered by e-commerce companies which is again a violation of e-commerce policy.

“Such festive sales offering deep discounts are nothing but influencing the prices directly or indirectly which is a clear violation of the policy,” it said. (IANS)