Amazon disappointed on profits but said it is investing in a number of growth areas.
Amazon’s multi-quarter run of beating analyst expectations on profits came to an end on Thursday, as the company posted a smaller than expected rise in profits. The e-commerce giant’s net income was $252 million in the third quarter, or $0.52 per diluted share, compared with $79 million, or $0.17 per diluted share, in third quarter 2015. Here are the five things to know from the e-commerce giant’s earnings:
1. Shipping continues to be costly: Amazon spent $3.9 billion on shipping costs over the quarter, up 43% from the same quarter last year. That’s also a slight increase from the $3.3 billion the company spent on shipping in the second quarter of this year. The rise in costs come as Amazon has been looking to take over parts of the shipping process over the past year, leasing trucks, planes, and even considering drones to build its own shipping network. If the company is able to build this network, it could rely less on the multinational shipping giants, such as UPS and FedEx—and potentially avoid some of the costs provided by these companies. And Amazon can continue to get items to customers’ doorsteps faster than competitors.
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2. Amazon Web Services is on a roll: AWS saw revenue from its cloud platform increase by 55% to $3.23 billion. AWS will surpass Bezos’ publicly stated goal of $10 billion in total sales for 2016, and is currently on a $13 billion run rate.
3. Fulfillment expenses were high: In quarter, Amazon added 18 fulfillment centers, the large warehouses where the company packs and ships millions of items a year. The company said on the call that it plans on building at least 26 centers over the course of 2016. That’s a step up compared to last year, when it built 18 fulfillment centers. General fulfillment costs went up 35% in the quarter to $165 million.
4. Alexa is a primary focus for Amazon: In his single quote in earnings releases, Amazon’s CEO and founder Jeff Bezos generally highlights a fast growing part of the business or an area that the company is investing heavily in. In the past, it’s been AWS or India. This quarter, it’s Amazon’s artificial intelligence-powered virtual assistant Alexa, a voice-controlled helper that answers questions, plays music on command, and orders product from Amazon Prime. Previously people needed one of Amazon’s home automation devices, the Echo or Fire TV, to use the intelligent voice assistant. But this week, the company also expanded Alexa to its line of Fire tablets. Bezos has said that Amazon has more than 1,000 employees working on Alexa, and the company is reportedly on a hiring spree for the team.
Amazon Is Going on a Hiring Spree
5. Amazon still loves India: The company continued to emphasize that India is an area of interest for expansion. Amazon has been open about the massive bet it placed on expansion within the country. Earlier this year, Amazon said it would be investing $3 billion into the new market. The company brought its subscription service Prime to India in July and is expanding its streaming video service to the region as well.
Amazon said on the call that it is now investing in adding streaming content to India, joining its efforts in the U.S., the U.K., Japan, and Germany. The company also cautioned that this investment would continue in the fourth quarter as well.