Executives told analysts that the company spent more than the $800 million it had planned to spend in the second quarter to move to one-day delivery from two-day delivery for its Prime members, who pay $119 a year. The investment will put a strain on earnings for the rest of the year, but it has already spurred consumers to buy more on Amazon's website and helped revenue growth rebound, he said.
"It does create a shock to the system, we're working through that now, and we expect we will be working to that for a number of quarters", he said. "We'll work through that over the next several quarters and when the dust settles, we'll return to increased efficiency".
Amazon's net income rose to $2.63 billion, or $5.22 per share, in the quarter ended June 30, from $2.53 billion, or $5.07 per share, a year earlier. Analysts were expecting $4.4 billion, according to analytics firm FactSet. Revenue for the period was $63.4 billion - at the high end of management's guidance for revenue during the period to be between $59.5 billion and $63.5 billion.
Analysts were looking for earnings of $5.57 per share on revenue of $62.48 billion.
"The first time we started discussing the rollout of one-day, our first thoughts went to Q4 of this year and our capability for holiday as much as Q2 and Q3, so we are confident that we will have the ability to handle seasonal demand", Olsavsky said. "This is their heaviest investment period of the year, so it's when we're most likely to see a pullback".
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Amazon's spending growth in the second quarter accelerated across the board, including for marketing to promote the annual Prime Day sale and on technology and content, which includes money for engineers and video programming. Operating expenses increased 21% to $60.3 billion in the quarter, faster than revenue. Shipping costs jumped 36% to $8.13 billion.
At the same time, sales growth for Amazon's cloud unit fell below 40% for the first time in years.
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These bets and others further afield, like its recent investments in electric and self-driving auto companies, show how Amazon has been happy to forgo short-term income for long-term gains. Shares in after-hours trading dipped about 1 percent. The stock has gained 31 per cent this year, pushing the company's market value near the US$1 trillion mark it surpassed briefly last September. The online leader reported a 20% increase in sales in the second quarter that beat Wall Street expectations.
If, as Amazon suggested, faster Prime shipping is drawing more people into the company's fold and growth re-accelerates for good, then a hit to profits will be worth it.
These bets and others further afield, like its investments in electric and self-driving auto companies earlier this year, show how Amazon has been happy to forgo short-term profit for long-term gains.