Amazon drops a bomb – and it could be a game changer – The Fool Motley

Amazon.com (NASDAQ: AMZN) released its first quarter results after market close on Thursday. The total business turnover of $ 59.7 billion, up 17% over the previous year, and a net profit of $ 3.6 billion, resulted in a profit per $ 7.09, an increase of 117%. Both figures exceeded analysts' consensus estimates, which expected a turnover of $ 59.65 billion and EPS of $ 4.72.

During the teleconference that followed, Amazon launched a bomb that could have far-reaching consequences not only for competitors in the e-commerce sector, but also for its physical competitors. In a move that could boost the company's sluggish revenue growth, Amazon said it was working to shorten the standard delivery option for premium members from two days to a day.

Faster delivery

Brian Olsavsky, Chief Financial Officer of Amazon, provided details:

We are currently working on making our free two-day Prime Shipping Program the one-day free shipping program. We are able to do this because we have spent more than 20 years developing our distribution and logistics network, but it is still a big investment. [we have] a lot of work … in front of us.

Amazon offered two days or faster shipping for years. Depending on the product and the markets, the company offered same-day or same-day shipping, even offering a one- or two-hour shipment for Prime Now, which delivers basic necessities.

The new one-day shipment will be available for about 100 million items previously shipped under the two-day window. In the last month, Amazon has already "significantly expanded" the selection of articles, as well as the number of zip codes eligible for a one day shipping. Amazon plans to roll out the new expedited shipment to its largest US market before expanding the benefits internationally. He expects that a large part of the construction to support the move will occur in 2019.

Olsavsky said: "This is a free basic offer of two days duration, turned into a free day offer", and Amazon plans to spend 800 million additional dollars to fund the initiative in the second quarter only. The company is betting that the increase in the number of premium subscribers and the additional purchases that will result will cover the additional costs.

Shipping elasticity

Amazon hopes that reducing the time required for most orders will encourage customers to make more purchases on its e-commerce website. Rather than go to the store for some items, buyers could just make them arrive the next day.

The company relies on a concept called elasticity during the expedition. In its simplest form, this means that the shorter the shipping time, the more likely customers are to buy other items.

RBC Capital Markets analyst Mark Mahaney was among the analysts who applauded the idea. He said, "This is great news, if you believe in the elasticity of transport, what we do. The more you ship, the more people buy … This could be a key growth catalyst for Amazon for a while. "

Revenue growth slows

Revenue growth has become more difficult for Amazon to obtain, which is not surprising given the company's huge existing sales base. In the first quarter, Amazon generated net sales of nearly $ 60 billion. It is therefore understandable that the company is having difficulty maintaining its historical growth increases.

Amazon's revenue growth from one year to the next has slowed in each of the last four quarters, setting it up recently at 17%, down from a growth of 43% in the same quarter of the previous year. The company hopes that by offering products faster, it will at least slow down or even accelerate its declining sales growth.