The businesses using Fulfillment by Amazon grew by 50 percent in a year, the company says.
Wall Street made an ugly face at Amazon.com when the retail and tech giant didn’t report as much profit as investors hoped for last Thursday.
But a good deal of the earnings miss resulted from Amazon paying more to handle shipments because of higher demand for its products. In the eyes of Mark Mahaney, an analyst with RBC Capital Markets, it’s “a good problem” to have.
Fulfillment costs rose 33 percent in the fourth quarter, outpacing a 22 percent jump in sales. RBC says a big part of that increase came because Amazon had to pay extra to handle the shipments of the unexpectedly high number of businesses that enrolled in its Fulfillment by Amazon program.
These third-party sellers, which pay Amazon to store their items in its warehouses and ship them through its network, jumped in number by 50 percent in one year, pushing Amazon’s ability to handle that demand to the limit.
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Mahaney said that meant Amazon had to scramble to provide more expensive and less efficient logistics to these third-party sellers.
The situation highlights how big a business handling third parties’ transactions through its website and its ample distribution network has become for Amazon.
Third parties sold 47 percent of all items shipped in the holiday quarter, up from 43 percent the previous year. And of those, 50 percent were shipped using the Fulfillment by Amazon service, up from 40 percent a year before.
Then, there’s also the fact that Amazon, in the pursuit of giving customers almost-immediate gratification, is offering ever faster (and more costly) delivery, exemplified by the two-hour Prime Now service that is available in Seattle and other cities, and customers are increasingly taking the company up on that offer.
Analysts with Robert W. Baird say that makes investing in logistics “clearly a strategic priority for the company,” but that ultimately it will reinforce the strength of Amazon’s business.
Amazon on Thursday posted a record profit of $482 million, or $1 per share, vs. $214 million or 45 cents a share a year earlier. Analysts, however, had expected the giant to report $1.56 per share, which led to a double-digit drop in the stock’s value as it was traded after-hours.