Shoppers craving faster delivery boost Amazon

SEATTLE — So just how impatient are shoppers? Enough to boost sales at Amazon.

This spring, Amazon announced plans to make oneday shipping standard for Amazon Prime customers, a major logistics investment it said would cost $800 million in the second quarter alone. The growth of Amazon’s core retail sales had been slowing, so investors had been hoping that offering millions more items available faster would get customers to spend more on its site.

On Thursday, the company said it had $63.4 billion in sales in its latest quarter, up 20% in the past year. Profit for the quarter was $2.6 billion, up 4%. Amazon beat Wall Street’s expectations for sales, but fell short on earnings. Shares fell about 2% in afterhours trading.

If the shipping initiative results in sales picking back up, investors will overlook the cost, said Michael Levine, an analyst at the Pivotal Research Group.

“Folks will be like, ‘I literally can’t care less,’ ” he said.

People with a Prime membership, which costs $119 a year, are the company’s biggest customers. They spend more than twice as much as nonPrime shoppers.

But with more than 100 million estimated Prime members in the United States, the growth is “reaching its limit,” according to a June report by Consumer Intelligence Research Partners. And as the rise in Prime memberships has slowed, so has Amazon’s sales growth.

There are signs that delivery times could help juice sales. About a third of Prime members say they have abandoned purchases in their online shopping carts because an item would not arrive fast enough, according to research from John Blackledge, who covers Amazon for the investment bank Cowen.

In the quarter that ended in March, the number of units sold on Amazon was up just 10%, compared with 22% growth during the same period a year earlier. This quarter, unit sales picked back up, growing 18%, far more than Wall Street expected.

“Changing Prime to oneday delivery is an epic move,” Blackledge said.

Amazon has several businesses that have begun to provide consistently large profits. The biggest component is Amazon Web Services, the largest cloud provider. It has continued to grow even as sales reached almost $8.4 billion in the most recent quarter, and is more profitable than the much larger retail business. But the annual growth did dip below 40% for the first time.

Sales on the website are increasingly from thirdparty merchants, who pay Amazon fees for listing and shipping their items. That business as a fee collector is also more profitable for Amazon than when it sells items directly from its inventory.

Finally, Amazon’s highmargin ad business reaches more than an estimated $10 billion a year in sales, as it has become almost a necessity for people selling on the website. Amazon has also been building out tools to use consumers’ shopping behavior to target them for ads across the web. Amazon’s “Other” business segment, which it says is largely ads, had $3 billion in sales in the last quarter.

Those profit machines let Amazon spend heavily on the infrastructure for fast delivery or other major pushes that don’t yet produce major revenue, like the Alexa voice assistant.

“They have cover with this ad business scaling and AWS as the incredible business it is,” Blackledge said.

The pressure in Washington has been ramping up, as lawmakers and regulators focus on antitrust concerns. Amazon had to testify before Congress last week, where an executive was peppered with questions about whether it misuses customer and seller data for its own benefit, and the Justice Department announced this week that it was opening a sweeping antitrust review into big tech companies.

On Wednesday, Facebook disclosed that the Federal Trade Commission had begun a formal antitrust investigation into the social network. The FTC also has taken the lead for antitrust oversight for Amazon.