One-day shipping a holiday gift for Amazon as revenue rises
Once a financial weight, one-day shipping is beginning to pay off for Amazon as customers expect speedy delivery. The Seattle-based retail giant reported strong holiday earnings on Thursday, further cementing itself as a retail success while formerly strong competitors flounder.
Customers using Amazon Prime’s one-day and same-day delivery more than quadrupled in the fourth quarter, the company said. In addition, in a statement, CEO Jeff Bezos said the quarter saw the greatest increase in number of Amazon Prime members to date; these customers currently hover around 150 million globally.
For the quarter, Amazon reported a 21 percent increase in net sales to $87.4 billion; net income rose 10 percent to $3.3 billion.
Many analysts were wary of the retail giant’s report following third-quarter earnings that include the company’s first profit decline in years due to heavy investments in one-day shipping. However, in the fourth quarter, an uptick in Amazon’s cloud computing services helped offset the cost of similar shipping investments and raise profit for the period, according to analysis from Charlie O’Shea, Moody’s lead Amazon analyst.
Amazon initially estimated the fourth-quarter financial penalty of one-day shipping would be around $1.5 billion, but it ended up costing slightly lower, despite consumer demand, according to Brian Olsavsky, chief financial officer.
“We get efficiencies as we learn and grow and handle more one-day volume,” he said on a call with analysts.
Amazon’s advertising revenue was also up. The business, posted in its “other” sales category, which primarily tracks ad sales, rose more than 40 percent to around $4.8 billion for the quarter, or $14 billion for the year. Executives said the company is focused on adding to the tools and products for its advertising customers and brands.
Amazon is again investing in a Super Bowl ad, this time with a spot starring Ellen DeGeneres and Portia de Rossi.
While holiday retail sales increased 3.4 percent, according to Mastercard SpendingPulse analysis, retailers’ individual results have been mixed. Target, which had been the bright spot amid a long wave of competitor sales declines last year, reported that November and December sales missed expectations. The chain’s same-store sales, which measure sales at stores open a year or more, fell 1.4 percent. Conversely, long-struggling Macy’s reported a smaller-than-expected decline; its same-store sales fell just 0.6 percent.
Earlier this week, Amazon competitor eBay said its fourth-quarter revenue fell 2 percent to $2.8 billion. The digital player is focused on reducing “ineffective marketing spend,” executives said on a conference call.