Despite reporting net sales of $70 billion in 90 days, and increase of 24% over the third quarter of last year, Amazon failed to live up to the expectations of analysts, who describe the online giant’s performance as “disappointing”. As of Friday morning, October 25, Amazon stock is down nearly 70 points, a 3.9% drop to $1,711 a share. That drop cost Amazon CEO Jeff Bezos approximately $7 billion in his personal net worth.
Our story on tedmag.com has the complete earnings report, showing a “soft guidance” for revenue in the 4th quarter of this year, partially due to a shortened holiday season. Amazon expects revenue for its fourth quarter to be up between 11% and 16%, falling somewhere between $80 billion and $86.5 billion for the 90 day period.
So, where is Amazon going wrong?
During its earnings report conference call, most of the questions centered around One Day, the new Amazon program that is focusing on getting orders to Amazon customers in less than 24 hours. Amazon is still trying to figure out its strategy. During the second quarter of this year alone, Amazon spent $800 million on improving its fulfillment network. “We were estimating an $800 million expense tied to One Day in Q2, and we actually were just above that in Q2,” Brian Olsavsky, Amazon’s Chief Financial Officer said in the earnings conference call. “In Q3, we expected that to grow, we put into our guidance and we hit essentially where we expected on the guidance. 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.”
Amazon is still building out its logistics network, and using data and Artificial Intelligence to move products to areas where customers are expected to buy them before the orders are even placed. It’s all a part of Amazon’s effort to speed up delivery, something 83% of it’s Prime customers said they wanted in a survey conducted in February of 2019.
“We’re expecting that it will be again a great help to customers in Q4. We have seen Prime members increase their orders, spend more, so that they must also see it as a real help to them in their daily lives,” Olsavsky added. Amazon has already added people, increasing it’s employment to match the delivery demand. “I mean we are up 22% year-over-year. In the past that pointed to investments in technology teams and that’s certainly part of it, but by in a way the biggest driver this time is the people that we’re adding for fulfillment and transportation roles, especially as we head into Q4 and add this additional transportation capacity to service One Day,” Olsavsky announced.
During the conference call, Amazon said it is still looking at more options for faster delivery, including continued relationships with the major overnight carriers and opportunities for small businesses to begin Amazon delivery services. “In the long run we’re going to have a combination both of our own capacity, certainly fueled by helps with third party carriers, large carriers that we’ve used in the past,” Olsavsky said. “So we see a role for all carriers, in fact including the delivery service partner program that we’ve developed to help spur small businesses to help fill this need as well.”
How that will impact the way all B2B customers react to delivery times will be watched very carefully. But, if B2B customers act like B2C customers, you can expect a higher demand for faster delivery in the near future.