Amazon Stocks Drop on the Back of Mixed Q2 Report

Ivana V. Image
ByIvana V.
July 26,2019
Amazon shares dropped by 2% following Thursday’s release of the second-quarter earnings report, which shows the company exceeded sales forecasts but missed profits estimates.

The results show significant investments into infrastructure aimed at providing faster delivery are starting to pay off, boosting sales at the expense of lower profit margins, even as revenues surpassed analysts’ expectations.

As a consequence, Amazon stocks traded around 2% lower, at the price of about $1973.82 in yesterday’s after-hours trading session.

The world’s largest e-commerce company announced its sales in the second quarter amounted to $63.4 billion, with revenue rising 20% compared with the same period last year, topping the 17% growth rate Amazon posted in April. Amazon attributes these numbers to earlier investments in faster shipping, which has generated more orders.

“Customers are responding to Prime’s move to one-day delivery — we’ve received a lot of positive feedback and seen accelerating sales growth,” said Jeff Bezos, Amazon founder and Chief Executive Officer. “Free one-day delivery is now available to Prime members on more than 10 million items, and we’re just getting started. A big thank you to the team for continuing to make life easier for customers.”

Making such quick delivery times to compete with rivals like Walmart, who offer 2-day shipping without membership fees have cost Amazon $800 million in warehouse infrastructure investments in the three months ending in June.

According to Chief Financial Officer Brian Olsavsk, the company will continue to make such investments in the future, aiming to provide next-day delivery for all of the 100 million products available to Prime members. “Right now we are seeing an increasing and ramping cost penalty, and that’s what’s built into the Q3 guidance,” Olsavsky said in a call with reporters.

All that spending on faster deliveries has affected Amazon’s profit margins, resulting in the lowest net income since the second quarter of last year - $2.6 billion. The company’s third-quarter operating income predictions also remain below analysts’ estimates of $4.4 billion, ranging between $2.1 and $3.1 billion.

“Second quarter′s results were negatively impacted by margin compression in North America due to the investments in next-day Prime delivery, which we continue to believe is an example of short-term pain for long-term gain,” Moody’s Amazon Analyst Charlie O’Shea said in an email statement, reported by CNBC.

Operating guidance for the third quarter expects sales to grow further, between 17% and 24% compared with the same period of 2018, and amount to anywhere between $66.0 billion and $70.0 billion.

About the author

Ivana is a staff writer at SmallBizGenius. Her interests during office hours include writing about small businesses, start-ups, and retail. When the weekend comes, you can find her hiking in nature, hanging off of a cliff or dancing salsa.

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