Amazon’s (AMZN) quarterly profit fell for the first time in more than two years. That, tied with a dismal outlook for the holidays has some investors spooked. The heavy investment the company is making in areas like one-day shipping is cutting into Amazon’s profitability but analysts say it’s a move that will pay off in the long term.
“I think one-day shipping is a game changer,” Tom Forte, DA Davidson senior analyst, told Yahoo Finance’s On the Move. “I wasn't sure that it was initially, but since you're seeing the re-acceleration in unit growth and the re-acceleration in sales growth. What it does primarily is open Amazon to the consumer for purchases that maybe they were historically going to a store to get.”
This upcoming quarter will be the third consecutive quarter in a row Amazon has invested in one-day shipping. Loop Capital research analyst Anthony Chukumba said at some point Amazon is not going to have to invest as much in one-day shipping as it currently is.
“Prime members are ordering more often and they're ordering more,” said Chukumba. “So I believe that the shift to one-day shipping — and by the way, I think this is the precursor to free same-day shipping — it's making Prime even stickier than it was before,”
“Amazon's built its fulfillment efforts to supplement or complement the U.S. postal service and UPS and FedEx, which couldn't handle peak demand in the fourth quarter,” said Forte. “Now, this opens the door to Amazon not only delivering on behalf of sellers on Amazon, but also for other retailers.
And what about that dismal outlook for the holidays and Q4? Forte said, on the sales front, a lot of the pressure is on the international side of the business and not the domestic side. Amazon pointed out a change in the timing of a holiday for India and a new consumption tax in Japan as weighing on the expectation for sales in the fourth quarter.
Chukumba said he’s not terribly concerned either.
”To some extent, Amazon spoiled us for awhile, right? Where you saw several quarters of slowing top line growth but expanding operating margins and beating the bottom line by a country mile,” he said. “But that’s the exception; that’s not the rule. The rule is what we are seeing now which is going back into investment mode, and we are seeing returns on those investments.”
Joanna Campione is a producer for Yahoo Finance.