Right now in Q3, 2019, we are told that Amazon is investing heavily to reduce shipping times and shipping costs for its Prime retail customers that should result in long-term customer satisfaction. As a result, its earnings for the third quarter dropped by 26% from the same period in 2018, despite sales growth to $70 billion. For investors that focus on short-term results this may be a blow, which is why the Amazon share price fell by 7% in the after-hours trading as investors sold off their shares. However, for those investors who focus on the long-term, Amazon’s investment for long-term growth is great news.
The CEO of Amazon, Jeff Bezos, is not worried about the drop, which he believes is temporary. He is preparing to make the 25th holiday season the best ever for his prime customers. The customers are already responding to the new one-day shipping policy because unit sales in the third quarter were up 22% compared to the beginning of the year before the policy was introduced.
Amazon has a long history of investing for growth, and long-term investors know that these decisions usually pay off. Even Dan Gallager agrees when he says in the Wall Street Journal, “Amazon admittedly has a long history of successfully investing for growth.” Therefore, investors should give Jeff Bezos the benefit of the doubt in this decision and support him.
Indeed, Jeff Bezos has always invested for the long-term and investors have always wondered when they would start getting profits. Already the forecast for the fourth quarter sales is between $80 billion and $86.5 billion, far short of the $87.4 billion expected by analysts despite the holidays which normally contribute heavily to retailers’ revenue and profit. That means the expected growth from the heavy investment will begin to be gained from the next financial year onwards.
Still, investors have nothing to worry about if they look at the result: Amazon.com is at the top of the list and will most likely remain there. Amazon intends to dominate the retail industry even more through delivery services and that strongly supports the company’s longer-term vision. It is generally known that executives who have longer-term focus in their decision-making usually make decisions that have positive impacts elsewhere. This current delivery times decision will mean shorter delivery distances, lower delivery costs and less use of airplanes and therefore lower carbon emission. That will have a positive impact on climate.
Changes are taking place in Amazon Web Services as well. This division represents 13% of the company’s total revenue but brought in 70% of total profits. Revenue in the third quarter for AWS was up 35% from a year ago (though the rate of growth was lower than in the 1st and 2nd quarter). There is little concern at present about Amazon’s role in the cloud space. Still, the company is also investing heavily in this area because AWS’s chief rival, Microsoft Corp. is competing heavily and it reported a record quarter for its cloud-services unit.
It sounds like a “sure bet” that Amazon’s longer-term focus will provide bigger benefits for its investors. So, they can support it for the longer-term.