Amazon Third Quarter Revenue Increases, Strong Holiday Season Predicted
By Anna Rose Welch, Editorial & Community Director, Advancing RNA
Company continues to invest in new warehouses, hire new employees, and deploy new technologies to improve holiday sales and service
Amazon, the world’s largest online retailer, announced it would be increasing spending on warehouses and Web-based services to a record level in order to boost product sales this holiday season. This announcement comes shortly after the company’s third quarter financial report revealed company revenue grew 24 percent to $17.1 billion — an increase from the $16.8 billion analysts were predicting. With this growth in revenue, net losses were reduced to $41 million, a sharp decrease from the $274 million recorded a year earlier. This positive third quarter has led to optimism for the fourth quarter, with the company predicting revenue will reach anywhere from $23.5 billion to $26.5 billion. Analysts project revenue to reach $25.9 billion.
In an effort to promote growth, Amazon CEO Jeff Bezos is investing large amounts of money into the company’s delivery network and cloud-computing services. The company and investors are optimistic these investments will enable the company to outpace the industry in the fourth quarter.
Building To Compete Through Fulfillment
Since 2010, the company has spent roughly $13.9 billion dollars on 50 new facilities. With increasing competition from EBay and Wal-Mart, both of which are implementing strategies to provide quicker service than Amazon, the company is continuing to build new warehouses closer to customers. According to Forrester Research analyst, Sucharita Mulpuru, shipping and freight are “an enormous cost” for the retailer. In order to reduce shipping costs over time, the company hopes that the construction of new warehouses closer to customers will reduce shipping costs. However, Mulpuru is less optimistic, claiming that shipping and freight costs “won’t really improve as they scale the business because picking, packing, and shipping packages are variable expenses.”
The number of warehouses being built will be less than last year however, and the company aims to consolidate many of the smaller warehouses. Compared to last year when the company opened 19 warehouses ahead of the holiday season, this year CFO Tom Szkutak says the company will only open seven. Regardless of the small number of warehouses being built, the company has hired 70,000 new employees to help provide customers with a smoother shopping experience this holiday season. Similarly, following the company’s acquisition of Kiva Systems, Inc. last year, the company plans to implement robots that move products around the warehouse, a process the company began to explore in the third quarter when it deployed 1,382 Kiva robots in three fulfillment centers.
While this expansion process is an expensive endeavor, the company recently reported a higher number of customers subscribing to Amazon Prime—a guarantee that business will continue to increase steadily into the future. The company didn’t release specific numbers, however it says it added “millions” of new Prime members in the last 90 days. According to CFO Szkutak, those who do join Prime tend to remain the company’s most loyal customers. Regardless of the great costs facing the company, Wedbush Securities analyst Michael Pachter says, Amazon “is growing revenues nicely. They are going to get to a point where they can’t spend all the profit.”
See how e-commerce has become more than just another sales channel.