Amazon CFO Warns Of A Dimmer Christmas, Even With Better Delivery

The coming holiday season — so important to retailers — promises to bring quicker deliveries to more consumers, more commerce-enabled homes and less revenue than expected for Amazon.

The eCommerce operator released its third quarter 2019 financials on Thursday afternoon (Oct. 24), and as always happens, it painted a picture of where online retail is, and where it’s headed.

First, some specifics: Amazon’s revenue increased 24 percent year over year in Q3, reaching some $70 billion, which beat analyst estimates of $68.8 billion. (The Q3 results include sales from Prime Day.) But investors didn’t take too kindly late Thursday to Amazon’s news that its fourth quarter revenue will come between $80 billion and $86.5 billion — analysts had expected Q4 revenue to hit $87.4 billion.

Amazon Chief Financial Officer Brian Olsavsky blamed a number of factors for that reduced Q4 guidance. Among them is the recent increase in Japan’s consumption tax, from 8 percent to 10 percent. The last time that happened, he told analysts on the post-earnings conference call, it also produced what he called a negative impact on Amazon’s sales.

Delivery Investment

The other big news from Amazon’s Q3 earnings is the continuing progress — and accumulating costs — of the company’s push to offer one-day delivery for Prime members. The initiative, launched earlier this year, has already cost Amazon some $800 million, and will cost some $1.5 billion more in Q4.

Those figures underscore the stakes involved in cementing even more customer loyalty via those quick deliveries, which the company expects to play a big part in the holiday shopping season. Already, Olsavsky said, the investment in one-day shipping is paying off, as the program helped spark the company’s Q3 revenue growth.

“We are very pleased with the customer reception to one-day shipping,” he told analysts. “You can see it in our revenue acceleration.”

He added that one-day delivery for now is mostly a U.S. program.

That said, analysts on the post-earnings conference call wanted to know how much of those one-day delivery costs were transitory and how much of those costs were structural.

The short answer, at least according to Olsavsky’s comments? It’s not totally clear yet. After all, Amazon is paying for more staffing and multiple shifts that enable later pull times, he said, along with new sorting centers and the other infrastructure needed to bring those quicker deliveries to more people. The company also has deployed more forward inventory, he said.

“We’re still learning [about] the one-day costs as we go, and what the long-term cost structure will be,” he said. “It’s a drastic change for the whole network.”

That said, the prospects are positive.

“One-day should help with holiday shopping,” Olsavsky told analysts.

In a way, this big, ongoing investment is a return to the Amazon of old, as the company sacrificed profits in order to build out its commerce, logistical and technological prowess. Investors seem to have noticed.

One-day delivery is not the only investment Amazon is making as the holidays approach. The company also intends to boost its advertising efforts, via hiring more sales professionals.

“We are chasing a large opportunity here,” Olsavsky said, “but it may be bumpy as we go along.”

Other Trends

Amazon’s Q3 results also provide fresh detail about its efforts to gain more power in the brick-and-mortar retail world. In this case, revenue for Amazon’s physical retail declined 1 percent, and stood at about $4.19 billion. Third-party seller services, meanwhile, increased 28 percent year over year, to some $13.2 billion. North American sales increased 24 percent in the third quarter compared to the same period last year, while international sales increased 21 percent.

Amazon also provided another detail that helps set expectations for the 2019 holiday shopping season. The company said as of the end of the third quarter — that is, Sept. 30 — “more than 85,000 smart home products from over 9,500 unique brands can be controlled with Alexa. There are hundreds of devices with Alexa built-in, including new products from brands like Fitbit, Sonos and Facebook,” according the company’s financial release.

Last year, Alexa played a meaningful role in Amazon’s holiday shopping results, and given the rise of both voice-active retail and homes that are increasingly enabled for commerce — trends well documented by PYMNTS — that looks certain to continue this year.

Delivery, though, seems to be the real area to watch, especially as concern grows about the impact of tariffs on the holiday shopping season. At last count, Amazon offered same-day and next-day delivery to at least 72 percent of the U.S. population, including almost all of the households (95 percent or more) in 16 of the wealthiest and most populated states and Washington, D.C. You can expect those numbers to keep increasing, giving Amazon competitors that much more to worry about.


Report: SoftBank to Invest $1 Trillion in AI-Powered Robot Factories in US

Japanese tech investment firm SoftBank Group is reportedly planning to invest $1 trillion to build artificial intelligence (AI)-equipped factories in the United States.

The factories will be located in industrial parks across the country and the robots with which they will be equipped will be designed to provide a solution for American manufacturers that are facing labor shortages, Nikkei reported Friday (March 28), citing unnamed sources.

SoftBank Group did not immediately reply to PYMNTS’ request for comment.

The Nikkei report noted that this amount is higher than the $500 billion investment SoftBank Group CEO Masayoshi Son announced in January.

It was reported in December that Son said SoftBank would invest $100 billion in the United States over the next four years, creating at least 100,000 jobs focused on AI and related infrastructure.

Son made the announcement at the Mar-a-Lago residence of then-President-elect Donald Trump.

“My confidence level to the economy of the United States has tremendously increased with his victory,” Son said of Trump. “President Trump is a double-down president. I’m going to have to double down.”

Son made a similar investment in December 2016 ahead of Trump’s first term, saying he saw a lot of deregulation coming with a Trump presidency.

In January, Trump announced the up-to-$500 billion Stargate project, in which SoftBank is an equity partner, together with OpenAI, Oracle and MGX. Son will chair the project and SoftBank will be responsible for funding the venture.

Stargate aims to build big AI-focused data centers in the U.S., with the first 500,000-square-foot data center being built in Abilene, Texas.

It was reported in February that SoftBank was leading a $500 million investment round in Skild AI, a startup developing general intelligence for robots that can be adapted to perform different tasks.

SoftBank participated in an earlier funding round for Skild AI, in which the startup raised $300 million in July to build its AI model for robotics.

Skild AI said at the time in a press release that it would use the new capital to expand its team and to continue scaling its model and training datasets in preparation for future commercial deployment of its technology.

It was noted in the press release that general purpose robots could support the understaffed labor market and perform hazardous jobs.

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