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Amazon raises the stakes for competitors with a one-day-delivery goal after profit surge

(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 can curb short-term profit and will up the ante for retail rivals such as Walmart Inc.

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 percent in after-hours trading on Thursday when Amazon said faster shipping to customers all over the world, and said its profit more than doubled in the first quarter, trouncing estimates thanks to rising demand for cloud and ad-services.

The news is a costly challenge for competitors that will have to deposit money into a logistics problem that even the king of e-commerce is still to solve. Amazon expected to spend $800 million in the direction of the shipping goal in the second quarter alone.

“There is a lot of error bars around this program, in particular the cost side,” Amazon’s Chief Financial Officer Brian Olsavsky told analysts on a conference call. “We (are) trying to take advantage of the fulfilment of the capacity and transport capacity, especially with external partners, that we have.”

While Olsavsky will not become a concrete planning for the program’s rollout, he said, “We expect to make steady progress quickly and the whole year through.”

AMERICAN rivals Walmart and Target Corp. have steadily rolled out two-day shipping, they are on many less items than Amazon Prime customers can get that speed for $119 per year in the United States. Olsavsky said the “vast majority” of Amazon’s selection is available in two days, and the company has already expanded the number of goods that are eligible for same-day and two-hour delivery.

“Amazon is starting it up a notch, and try to differentiate themselves,” said Cathy Morrow Roberson, a former UPS analyst who founded consulting firm Logistics Trends & Insights.

She estimated that about 20 percent to 25 percent of Amazon’s shipping is currently within one day to notice that the fast service was easy in the large AMERICAN cities where it has already been built out of its delivery network. However, the cost may be prohibitive elsewhere.

“I don’t know how they were going to do in the ‘Town of the U.S.,” she said.

MORE PROFIT TO SPEND

Shifts in the nature of Amazon’s business have provided the company windfalls that can apply in the direction of the ambitious program delivery.

The company’s loyal customer base has attracted traders to sell more and more advertising through its website in exchange for fees. In the first quarter, sales of the seller of services jumped 20 percent to $11.1 billion, while ad and other revenue rose by 34 percent to $2.7 billion, the company said.

Meanwhile, Amazon’s cash cow, the cloud unit, known as AWS that sells data storage and computing services to companies, saw operating profit grow 59 percent to $ 2.2 billion.

The figures reflect Amazon’s transformation from a low margin retail business on a more lucrative market and technology behemoth. While revenue growth slowed, profits rose to $3.6 billion in the first quarter, beating the analysts ‘ expectations of $2.4 billion, according to the IBES data of Refinitiv.

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 $62.4 billion, according to Refinitiv data.

“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.

Olsavsky, Amazon’s CFO, said the company was still their fruit from previous years of the lease of and investment in warehouses and other infrastructure. The company was successful and in accordance with the changes in the regulatory environment in India, which only months earlier had caused Amazon to some uncertainty. But the investment would accelerate, he said.

Amazon estimated that in the second quarter, the operating profit would be as much as $3.6 billion, short of the $4.2 billion that analysts had expected, according to FactSet.

The company intends to offer more money to roll out the benefits of international Prime members. Rent would also pick up the 12 percent increase in the Amazon river placed in the past 12 months, according to Olsavsky.

FILE PHOTO: Amazon boxes are seen stacked for delivery in the district of Manhattan of New York City, January 29, 2016. REUTERS/Mike Segar

The company is delving into even less known site, also. 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.

The initiatives show how the world’s largest online retailer, has long invested in the still-not-tested technology and programs, such as the $13.7 billion purchase of Whole Foods Market to strengthen home grocery delivery service.

The four days marches in new industries is a lucrative opportunity for the shareholders, including founder Jeff Bezos, who is the richest man in the world.

Reporting by Jeffrey Dastin in San Francisco and Lisa Baertlein in Los Angeles and Arjuna Panchadar in Bengaluru; Editing by Arun Koyyur and Lisa Shumaker

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