Amazon’s India investment continues to dent profitability

Amazon’s India investment continues to dent profitability
Photo Credit: Shah Junaid/VCCircle
2 Feb, 2018

E-commerce giant Amazon.com Inc.’s massive investment in India has become a drag on its margins, with the loss on its international business more than doubling in 2017.

Loss from the international business widened to $3 billion in 2017 from $1.3 billion the previous year, the company said in a statement.

The North American division earned a profit of $2.8 billion for 2017, up from $2.36 billion in 2016. The cloud unit, Amazon Web Services, reported a profit of $4.3 billion in 2017, up from $3.1 billion.

Higher profits from North America and the cloud unit boosted overall net profit to $3 billion in 2017 from $2.4 billion the previous years. Global net sales increased 31% to $177.9 billion from $136.0 billion in 2016.

For the fourth quarter ended December, the company posted a net profit of $1.86 billion on net sales of $60.5 billion.

Amazon has repeatedly said that India was one of its fastest-growing markets and that it would continue to invest in India. Its finance chief, Brian Olsavsky, had previously said that investment in India was one of the primary reasons for the mounting loss in international operations.

The company has so far earmarked $5 billion for India, and has deployed most of this amount.

Just this week, VCCircle reported that Amazon.com had injected another Rs 1,950 crore ($306.3 million) into its India arm, Amazon Seller Services Pvt. Ltd, as it continues its quick pace of investments in the country.

“India continues to be a good story for us. We feel that it’s had a lot of growth in the past year,” Olsavsky said during an earnings call with investors.

He also said that the company’s Prime membership service has been a huge success in the country with an adoption rate that even surpassed that of the US. The Prime membership service offers free and faster delivery. Amazon has recently increased the annual membership fees to Rs 999 from the inaugural offer of Rs 499.

“In fact, more Prime members joined India’s Prime program in the first year than we’ve seen in any other country in the history of the world, our world,” he said.

Olsavsky said Amazon is adding more items eligible for its Prime service, increasing the collection of TV shows and movies on Prime Video and will launch Prime Music in India soon.

Amazon’s investments in India seem to be paying off with the company ahead of main rival Flipkart in app downloads, website visits and app usage metrics.