Amazon profits hit by rising shipping costs

Amazon delivered another quarter of sales growth above 20%, but a spike in shipping costs cut the firm’s bottom line.

Shares dropped sharply in after-hours trade after the e-commerce giant said profits fell by about 25% to $2.1bn in the three months to 30 September.

The firm said it spent nearly $10bn (£7.78bn) on shipping costs in the most recent quarter, up 46% from last year.

But sales rose 24% year-on-year to $70bn.

Amazon boss Jeff Bezos said the company’s push to offer one-day shipping to its Prime members, which has contributed to increased costs, will pay off. Purchases by Prime members have accelerated alongside the one-day offering, executives said.

“It’s a big investment, and it’s the right long-term decision for customers,” Mr Bezos said.

However, investors were disappointed by the e-commerce company’s sales forecast for the last three months of the year.

Amazon said it expected sales growth of 11% to 20% in the upcoming quarter, which includes the critical festive season. It pinned that expected deceleration in part on the recent increase in Japan’s consumption tax, which it said would depress purchases.

The sales prediction helped to send the firm’s shares down more than 6% in after-hours trade.

“Whether all the extra investment will be worth it in the end is perhaps open to question, especially given the lacklustre sales guidance for next quarter,” said Nicholas Hyett, analyst at Hargreaves Lansdown. But, he added, “it’s been foolish to doubt Amazon in the past.”

‘Softening growth’

Amazon’s overall revenue gain occurred despite slowing growth in the firm’s cloud computing division, Amazon Web Services (AWS).

It reported sales of almost $9bn, up 35% from 2018. Last year, the unit, which is credited with lifting Amazon to profitability, posted year-on-year growth of 46%.

The deceleration is a potentially worrisome sign for investors looking at the bottom line, said Andrew Lipsman, an analyst at eMarketer, who called the quarter “a very mixed bag”.

“AWS has fuelled Amazon’s margin expansion of late but the continued softening in growth rates will weigh on the company’s profits if they can’t reverse the trend,” he said.

Amazon’s push into physical stores with its purchase of grocer Whole Foods also has yet to pay off. Sales in its physical stores declined 1% year-on-year, to about $4.2bn.