Amazon’s Biggest Issues: Unrealistic Expectations, Faster Delivery

Amazon’s Biggest Issues: Unrealistic Expectations, Faster Delivery

A good news/bad news 2Q earnings report for Amazon has investors stepping back from the online giant, with after hours trading seeing the Amazon stock drop 7%.  After closing on Thursday, July 29 at $3,600 a share, Amazon stock tool an immediate dip at markets opened on Friday morning, July 30. As of 9:30am Eastern time, the stock had dropped $283 a share to $3,317.

The good news for Amazon: Revenues were 25% higher than the second quarter of last year, which is a pretty significant accomplishment when you consider the country was turning to online buying while lockdowns were in full effect. For the three month stretch of the second quarter, Amazon’s revenue was $113 billion, which is up 25% from the same period last year.

The bad news for Amazon: Revenue was expected to be $115 billion for the quarter.

It definitely shows the power of e-commerce with B2C customers. As has been the case in the past, Amazon did not break out it’s revenue results for its B2B offering, Amazon Business.

Amazon says it is able to meet that $113 billion customer demand through its continued growth of third party sellers. Last year, Amazon reported 53% of its sales were through third party sellers. This year, that percentage has increased to 56%. “We like to see that,” Brian Olsavsky, Amazon’s Chief Financial Officer told reporters during the Amazon earnings conference call. “That’s a steady march. As we said, the third-party sellers are doing a great job and we like to see that.” Third party sellers use the Amazon website to sell products, but the third party seller warehouses and ships to ordered products to the customer without Amazon being involved.

That’s something Amazon needs, since it admits it is struggling to ship billions of dollars in orders every quarter. While it has added distribution centers and delivery drivers, it still has not kept up with demand.

“We’ve literally nearly doubled our network here in the last 18 months from a size standpoint,” Olsavsky pointed out. “There’s a lot of that going on, a lot of strong effort by our fulfillment and ops teams to help mitigate the costs. The other thing is wage pressure has become evident, we’ve talked about this a bit. The wage increase that we normally would do in October, we pulled forward into May. We’re spending a lot of money on signing and incentives. And while we have a very good staffing levels, it’s not without a cost. It’s very competitive labor market out there. And certainly the biggest contributor to inflationary pressures that we’re seeing in business.”

“Our focus is really squarely on adding capacity to meet the current high customer demand,” Olsavsky added. “We’re always working to develop new and innovative ways to support partners, and that includes testing shipping programs and newer initiatives that can help those businesses get packages to customers quickly and reliably. So continues see us look for ways to be able to innovate where it’s appropriate relative to the customer demand.”

“Customers respond well to the fast, high-quality delivery,” Dave Fildes, Investor Relations for Amazon told reporters. “Back in 2019, we were talking at that time about expanding the one-day delivery in the U.S. in the Europe, one-day delivery as part of Prime in most of those are sizable European countries where we operate has been standard for many years. We’re investing in the transportation network to support the demands, a significant part of the capital investments we’ve been talking about for the past few years, and certainly since the pandemic’s start, has been to support those efforts in middle and last mile capacity to keep pace and support with that demand. So that work’s not done yet. We’re continuing to expand.”

The Amazon executives say the company will continue the warehousing and delivery investment through the rest of this year in support of faster delivery times for customers.


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