Amazon Stock Drops 6% in After-Hours
After Amazon.com, Inc. (NASDAQ:AMZN) released its quarterly earnings after the market closed last Thursday, investors took a hammer to the share price in after-hours trading.
Net income slipped more than 70% from the previous quarter as Amazon poured money into new warehouses and faster delivery times. The increased demand since July forced it to open 23 new fulfillment centers across the world, as opposed to just three in the first half of the year.
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The additions took a huge bite out of Amazon’s cash flow. In an attempt to pacify investors’ concerns, Chief Financial Officer Brian Olsavsky reminded them that the increased capacity would help handle holiday shopping volumes later this year. (Source: “Amazon Takes Hit as Costs Surge,” The Wall Street Journal, October 27, 2016.)
Plenty of demand surge can be attributed to Amazon’s $99.00 “Prime” membership plan. The company intends Prime to serve as an all-access pass for benefits such as free one-day deliveries on Amazon.com products, food deliveries, and a video/music streaming service.
Prime has proven to be an expensive, but effective, method of locking customers into the Amazon ecosystem. This buffet-style expansion plan has driven shipping costs up 43% in the third quarter, but “customers love it,” says Olsavsky.
Although the company did not stress the point, some analysts believe that the company also took a hit to cash flow by trying to build an independent delivery system. Industry insiders have long suspected that Amazon wants to control the entirety of its sales, down to the very last mile.
Olsavsky admitted as much by saying, “We want to control our own destiny.”
The company has leased 40 planes and is buying trucks. Over time, the expectation is that it would even start offering its delivery services to third parties.
Meanwhile, Amazon founder and CEO Jeff Bezos continued to drive attention toward the company’s artificial intelligence (AI) platform, a software called “Alexa” that is powering many of the firm’s hardware investments.
Credits: Flickr.com/ Canonicalized
“Alexa may be Amazon’s most loved invention yet—literally—with over 250,000 marriage proposals from customers and counting,” said Bezos. “And she’s just getting better. Because Alexa’s brain is in the cloud, we can easily and continuously add to her capabilities and make her more useful—wait until you see some of the surprises the team is working on now.”
