On a conference call with analysts after the report Thursday, Amazon CFO Brian Olsavsky said the actual cost of speeding up shipping ended up being “a little bit higher than that number.” The company grappled with “transition costs in our warehouses” as well as “costs from buying more inventory and moving around in network to be closer to customers.”
“It does create a shock to the system,” Olsavsky said on the call. “We are working through that now.”
Charlie O’Shea, an analyst who tracks Amazon for Moody’s, described the substantial investment in one-day shipping as “short-term pain for long-term gain.” While it may hurt profits now, he said it is “a necessary strategy to compete with brick-and-mortar’s speed advantage to the customer.”
Shares of Amazon dipped as much as 3% in after hours trading Thursday following the earnings report’s release before recovering.
“Customers are responding to Prime’s move to one-day delivery — we’ve received a lot of positive feedback and seen accelerating sales growth,” Jeff Bezos, Amazon founder and CEO, said in a statement Thursday.
Last month, Amazon announced that next-day delivery is now available for more than 10 million Prime members.
On the call, Olsavsky declined to detail how the availability of one-day shipping is shifting the product choices for these millions of customers. But he did stress that “a lot more products enter the consideration set for our customers.”
In addition to enticing customers to shop more with faster and faster shipping, Amazon is also working to boost its overall revenue through a mix of newer services, including cloud computing and advertising.
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