San Francisco Amazon founder and CEO Jeff Bezos has consistently said he will invest in the long-term future of Amazon, even if it should hurt in the short term – investors included. Since April, the world market leader in online trading and the largest cloud computing provider in the world has been working on the strategy of enabling as many of its paying Prime customers as possible to deliver the ordered goods the very next day. The company invests billions in logistics, department stores, cargo aircraft, process optimization and employees.
Now Bezos has presented the bill for it. An account that Wall Street has done much worse than expected. After yesterday's Q3 2019 release, the stock market's share price temporarily slumped by more than nine percent. Most recently, he was around six percent lower at $ 1660. Shareholders lost up to $ 80 billion in stock market capitalization.
While revenue growth of 24 percent to $ 70 billion was still in line with expectations, the cost of retrofitting supply and inventory structures hogged net profits. In addition, there was an unexpected problem: The cloud computing subsidiary AWS, which contributes more than 66 percent of the Group's operating income, continued to slow growth. A problem that had already hit competitor Microsoft the day before, but AWS got it even harder.
Amazon's net profit fell to $ 2.13 billion in the quarter. Last year it was $ 2.88 billion. This is the first time since the beginning of 2017 that net income declines year-on-quarter.
For the current fourth quarter, the Christmas quarter, in which the trade traditionally generates a large part of sales and profits, only an operating profit of 1.2 to 2.9 billion dollars is expected. The days when the net profit could approach the zero line, investors had already forgotten. Now they are back.
The Christmas quarter, according to forecasts of the Group, will not increase sales as sharply as before. He is estimated at 80 to 86.5 billion dollars. That would not even meet the estimates of the securities experts who wanted to raise the bar to 87 billion dollars at best.
Setbacks do not bother Bezos
How much the total conversion in the trading system has burdened the result is shown by two figures. In the third quarter, operating expenses increased 26 percent to $ 66 billion, the highest in a year. Shipping costs skyrocketed 46 percent to $ 9.6 billion.
CFO Brian Olsavsky also made it clear in the analyst talk that this is not the only construction site in the company. Furthermore, investments are being made at high pressure in the highly profitable cloud subsidiary AWS, expensive data centers are being built or rented, investments are being made in marketing and sales for the hardware business and the video subsidiary Prime. The number of full-time and part-time employees worldwide rose by 22 percent year-on-year to around 750,000.
Sales at AWS, which sells cloud infrastructure and services to companies, continued to climb 35 percent to nearly $ 9 billion. But that was below the projections of $ 9.19 billion. Microsoft had announced the previous day a sales increase of 59 percent for its competing Azure. The number two in the market is catching up and on and on Google shows aggressive growth here. Google wants to present its quarterly figures on October 28th.
But the current setbacks do not deter Jeff Bezos. "Customers love switching from two-day delivery to next-day delivery." Billions of products have already been ordered with free delivery the following day. "It's a gigantic investment, and from the customer's point of view, it's exactly the right decision in the long term." Prime customers pay a one-time annual fee, which means that all delivery fees are covered.
At least one thing you can not blame Jeff Bezos: He not only lets others pay for what he has to answer for, but also personally bears the consequences. According to Bloomberg's billionaire index, on Thursday night, at the low point of the Amazon share, its book assets were again $ 5 billion lower than that of Microsoft co-founder Bill Gates, who is back in the lead. But as I said: Jeff Bezos plays the very long game.
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