Amazon reports lower profit, invests in one day shipping, cloud infrastructure

Amazon reports lower profit, invests in one day shipping, cloud infrastructure
Photo Credit: Photo Credit: Reuters
25 Oct, 2019

Amazon’s revenue from the cloud business increased by 35% year-on-year to $9 billion in the third quarter even as it continues to invest heavily in Amazon Web Services (AWS)  infrastructure to accommodate growing demand.

“We are investing a lot more this year in sales and marketing personnel, mainly to handle a wider group of customers and an increasingly wide group of products,” said chief financial year Brian Olsavsky during the earnings call.

Amazon posted sales of $70 billion and comparatively low profit of $2.1 billion from $2.9 billion last year due to free one day shipping as part of the Prime membership announced in June in the US and international markets.

Amazon spent close to $800 million in Q2 for one day shipping and added the move has seen Prime customers ordering more and spending more.

“So, as we head into Q4, we’ve added what’s just nearly a $1.5 billion penalty in Q4 year-over-year for the cost of shipping, which is essentially transportation costs, the cost of expanding our transportation capacity, things like adding additional poles and shifts in our warehouses, the cost for deploying inventory closer to customers, there’s a lot of tangential costs, by and a way the biggest expenses is on the actual transportation cost,” said Olsavsky.

The company also increased its headcount to 100,000 people in Q3, up 22% year-on-year. The biggest driver for the hiring was due to fulfilment and transportation roles in preparation for the holiday season in the coming quarter and to service one day deliveries, apart from technology team recruitments.

The company has also predicted Q4 revenue guidance between $80 billion and $86.5 billion.