Amazon’s record quarterly profit streak has ended, as the online retailer faced higher shipping costs, slowing growth from its cloud-computing business and a steeper loss in its overseas retail business.
The company’s second-quarter profit rose 3.6 per cent from a year ago to $US2.63 billion after more than doubling last quarter. Amazon had posted its best-ever profit the previous four quarters.
Amazon’s shipping costs escalated as the company invested more than $US800 million to make one-day free shipping the standard for Prime members, instead of two days.
On a positive note, Amazon’s sales growth reignited in the quarter after shrinking over the past four periods. Revenue rose 20 per cent to $US63.4bn compared with a 17 per cent increase three months earlier.
The results sent Amazon’s shares down 2.7 per cent in after-hours trading on Thursday to $US1921 a share.
Before the late-afternoon report, the stock was up 30 per cent this year, giving the company a market value of about $US981bn.
Amazon over the past few years has rewarded investors with a market value hovering around $US1 trillion. It has dominated e-commerce, sprouted a hugely profitable cloud-computing business and spread its arms into new industries such as groceries, entertainment and advertising.
The outsize success has also made it a political target. The company is among a group of giant tech companies that face mounting regulatory scrutiny about their market power.
There are also some vulnerabilities unrelated to regulation.
Amazon Web Services delivered $US8.4bn in sales, though, year-over-year growth slowed to 37 per cent after topping 40 per cent in previous quarters. Operating income of the cloud-computing business, which rents computing power to companies and the government, rose 29 per cent to $US2.1bn. While Amazon essentially created the cloud-computing category, the company faces stiffer competition from rivals playing catch-up.
Amazon has also encountered problems overseas, including in India, where new e-commerce rules favour domestic companies.
Its international sales rose 12 per cent, compared with 9 per cent in the first quarter, though the unit’s loss widened to $US601 million from a year earlier.
Its worldwide shipping costs jumped 36 per cent — after hovering around 20 per cent in recent quarters — as Amazon seeks to cater to evermore demanding consumers with speedier shipping that could give itself an edge over its retail rivals.
“Q2’s results were impacted by margin compression in North America due to the investments in next day Prime delivery, which we continued to believe is an example of short-term pain for long-term gain,” said Moody’s Amazon analyst Charlie O’Shea.
For the current quarter, Amazon has projected revenue of between $US66bn and $US70bn, with analysts projecting on average $US67.3bn in revenue. The company expects between $US2.1bn and $US3.1bn in operating income for the third quarter.