Amazon sales increase 20% but profits miss expectations

Amazon has revealed a 20% increase in revenue to $63.4 billion for its second quarter ending 30 June 2019.

But profits were lower than Wall Street expected, standing at $2.6 billion. Amazon’s investment in shipping increased 36% to $8.1 billion as the retail titan strives to offer one-day shipping across the States. But while this investment has impacted the company's bottom line, the benefit of one-day shipping is leading to more sales.

“Customers are responding to Prime’s move to one-day delivery – we’ve received a lot of positive feedback and seen accelerating sales growth,” said Amazon founder and CEO, Jeff Bezos. “Free one-day delivery is now available to Prime members on more than ten million items, and we’re just getting started.”

eMarketer principal analyst, Andrew Lipsman, called the results “a decidedly mixed bag”:

“Increased costs for one-day delivery were baked in and likely helped on the top line, but the unexpected hit to profits came from the slowdown in the cloud business,” he said. “Heightened competition from Microsoft and Google could really crimp this high margin revenue stream over the next few quarters.”

Meanwhile, Jon Reily, VP, global commerce strategy lead at Publicis Sapient and former head of eCommerce at Amazon, had a more positive outlook: “Analysts are calling this a profit shortfall, or even a "profit wiff", but I instead see it as the company doing what they feel needs to be done and not being too concerned with what Wall Street thinks.

“The decrease in profits due to margin compression is a classic Amazon move of "don't let short term gains outweigh the importance of long-term goals". In six quarters no one will remember that they missed earnings estimates by $100 million but all of their competitors will still be playing catch-up when they report they have one-day shipping complete throughout their entire network. Amazon is all about the long tail, and this is classic Amazon.”

Reily concluded: “Amazon isn’t killing retail, retailers who don’t digitally transform to meet the new expectations Amazon has sewn into consumers’ minds are committing suicide.”

Amazon said its Prime Day shopping event held earlier this month was its biggest ever, with more sales than the previous Black Friday and Cyber Monday combined. The shopping event also resulted in more new consumers joining Amazon Prime on July 15 than any other day, demonstrating the power of holding a one-off sales event to convert membership.

But this year’s celebrations were overshadowed by workers staging protests against warehouse conditions, which the union, GMB, described as “appalling” and “dehumanising”.

Over the last quarter, Amazon announced it will hire 2,000 new employees in the UK in 2019, taking its permanent workforce to 29,500 by the end of the year. Nearly 200 of these roles will be highly-skilled roles developing innovative technology at Amazon’s Development Centres in Cambridge, Edinburgh and London.

The retail giant, also launched a new click & collect retail partnership scheme, Counter, where customers can pick up their Amazon parcels from high-street retailers including Next. Amazon also announced plans to and the ‘Morrisons at Amazon’ store on Prime Now to more cities around the country.

Meanwhile, fellow technology titan Alphabet impressed analysts with its profit hike to over $9 billion, while revenues increased 19% year-on-year to $38.9 billion.