(Reuters) – Amazon.com Inc plans to deliver packages to members of the loyalty club Prime in only one day instead of two days, a part of the spending ramp-up that could restrain future profits after a blockbuster first quarter.
FILE PHOTO: The logo of Amazon is seen in the company’s logistics centre in Boves, France, August 8, 2018. REUTERS/Pascal Rossignol
Shares rose 2% in after-hours trading on Thursday on the faster shipping notice for customers all over the world and if Amazon’s first-quarter profit trounced estimates thanks to rising demand for cloud and ad-services.
Amazon will spend $800 million in the second quarter on the goal.
The announcement adds pressure to rivals Walmart Inc and others all racing to keep pace with the speed and benefits of Amazon Prime program.
Amazon’s first-quarter net profit more than doubled to $3.6 billion, while analysts were only expecting $2.4 billion, according to the IBES data of Refinitiv.
In the second quarter the operating profit will be as much as $3.6 billion, but analysts had expected $4.2 billion, according to FactSet.
Chief Financial Officer Brian Olsavsky said Amazon was still their fruit from previous years of the lease of and investment in warehouses and other infrastructure.
“We bank on the efficiency of the prior investments, continued in Q1,” he said on a call with reporters. “There will be times that we need to invest ahead to build warehouse capacity, but we are now on a beautiful path where we make the most of the capacity that we have.”
Olsavsky also said earlier that the company would have to spend more later this year to roll out more benefits for the international Prime members.
The news is a familiar refrain for the world’s largest online retailer. For years, Amazon has made expensive bets on new technology and programs, such as the $13.7 billion purchase of Whole Foods Market in 2017 to a player in the AMERICAN supermarket business.
Amazon’s investments had long led to lower profits. However, the constant, often successful four-day new industries are lucrative to the shareholders, including founder Jeff Bezos, who had become the richest man in the world.
The luster of this bet still shone bright on Thursday.
The company’s loyal customer base has attracted traders to sell more and more advertising through its website in exchange for fees, the help of Amazon transform from largely due to the low margins in the retail sector a more lucrative market.
The turnover of the seller, the services jumped 20 percent to $11.1 billion in the first quarter, while ad and other revenue rose by 34 percent to $2.7 billion, the company said.
Meanwhile, Amazon’s cloud unit continued to grow as more companies move data and computing operations to the ict company of the servers. Sales for Amazon Web Services (AWS) increased from 41 percent to $ 7.7 billion in the first quarter.
MORE HIRING, SPENDING TO COME
Some analysts noted that these figures, although impressive, was lower than what Amazon had posted in the previous quarters.
“Amazon delivered with a slower growth in all major segments – AWS, advertising and e-commerce – but the margins skyrocketed, apparently driven by less aggressive investment,” said Atlantic Equities analyst James Cordwell.
Amazon argued that the expenditure is indeed on the way, and with a smaller growth in profits.
The company is the construction of warehouses all over the world to ensure that the edge with the delivery of goods to customers the fastest. It is spending more on video, of live sports on a planned prequel series “The Lord of the Rings” to people logging on to the website to look, and while they are there, buy socks.
Hiring of pick-up from the 12 percent increase in the Amazon river placed in the past 12 months, Olsavsky said.
And the company is delving into less familiar terrain. The recently announced investment in self-driving and electric car companies, bullying, how it thinks that this high-tech, capital-intensive companies can pay dividends may be in the form of autonomous deliveries in the long term. Amazon has not described in detail the thinking behind the bets.
In China, where the company had long struggled to compete with Alibaba Group Holding Ltd, Amazon said this month would be the closing of the warehouses and of the domestic market in July.
There were silver linings for investors, however.
FILE PHOTO: Amazon boxes are seen stacked for delivery in the district of Manhattan of New York City, January 29, 2016. REUTERS/Mike Segar
Amazon’s Olsavsky said that the company saw no material impact in India from the actions that the company has to comply with the new regulations affecting foreign investments in the e-commerce sector, something Amazon had voiced concern about in the past. Prime member sign-ups in India, one of Amazon’s most important growth markets continue to rise the fastest in the history of the company.
Bezos, who many consider to be a management guru, established his closely watched divorce in such a way that he remains fully majority of his family stock, save Amazon a boardroom battle. However, his fortune, which is the largest of any married couple in the world, will be divided.
The company forecast net sales of between $59.5 billion and $63.5 billion for the second quarter, the center was lower than analysts average estimate of $62.37 billion, according to the IBES data of Refinitiv.
Reporting by Jeffrey Dastin in San Francisco and Arjuna Panchadar in Bengaluru; Editing by Arun Koyyur and Lisa Shumaker