Amazon stock drops on slim holiday-profit forecast

October 24, 2019

Amazon’s push for ever-faster delivery is expected to hurt its revenue and profit over the crucial holiday season, as the online retailer invests in lightning-fast service to retain its edge over competitors.

The e-commerce giant forecast fourth quarter revenue and profit that missed analysts’ projections. Its stock sunk 9% in after-hours trading Thursday.

Amazon is moving to cut its delivery time in half, to one day instead of two, for Prime members who pay $119 a year. The company has said the change will be costlier than it had anticipated — still, it insists it’s committed to making the investment in order to outpace competitors like Walmart, which offers free two-day shipping without a membership.

Seattle-based Amazon reported net income of $2.1 billion, or $4.23 per share, in the third quarter. That’s 36 cents per share below analysts’ expectations, according to FactSet. Revenue beat expectations, however, rising a whopping 24% to $70 billion for the three months ended September 30.

“Amazon’s strategically-necessary investments in next-day delivery continued to weigh heavily on its retail profitability,” said Moody’s Amazon analyst Charlie O’Shea.

“Based on guidance for Q4, it is clear that Amazon will continue to invest heavily in its delivery initiative to support its retail business in the face of intense competition from brick-and-mortar retailers,” O’Shea said. The company’s investments are “not leaving much room for potential retail profitability” in the near-term, he added.

Amazon founder and CEO Jeff Bezos insists the company’s strategy will pay off in the long-run.

“Customers love the transition of Prime from two days to one day — they’ve already ordered billions of items with free one-day delivery this year. It’s a big investment, and it’s the right long-term decision for customers,” he said in a press release Thursday.

Fast delivery is among the perks included in a Prime membership, and has helped Amazon draw more than 100 million loyalists. Other perks include television streaming and discounts at Amazon-owned Whole Foods Market.