In the forthcoming Q3 earnings report, investors are eagerly anticipating the results to gauge the impact of Amazon’s aggressive expansion of same-day delivery services on its profit margins.
Amazon’s same-day delivery is now accessible in over 90 cities. Prime members enjoy this service for free, while non-members can avail it for a nominal fee of $9.99. The company invested significantly in logistics during 2020 and 2021 to expand the reach of its same-day delivery service, initially introduced in 2015.
As the earnings report approaches, both investors and analysts are optimistic about a substantial boost in gross profit margins. It is expected that profit margins will increase by 2.67% compared to the previous year, reaching 47.37%, as projected by LSEG.
The rapid and efficient delivery model «drives heightened traffic to Amazon’s website,» states CFRA analyst Arun Sundaram. «It results in larger orders on Amazon, especially with the platform’s growing range of everyday essential products, such as paper towels, food, and packaged goods.»
Amazon methodically stocks its same-day delivery centers with its top 100,000 products. In April, the company completed a reorganization of its fulfillment network, dividing the U.S. into eight regions to optimize delivery distances, ensuring quicker deliveries.
Sarah Mathew, Vice President of Global Delivery Experience at Amazon, explains, «We’ve observed that the introduction of same-day delivery typically leads to increased customer engagement and higher purchase volumes. However, the extent of this increase varies depending on the product category.»
Amazon remains committed to expanding its fulfillment centers to further enhance its same-day delivery service.
Apart from the boost in sales, same-day delivery has a positive impact on Amazon.com’s website traffic. This not only benefits the retailer’s bottom line but also positions it to generate more advertising revenue, which has consistently grown, increasing by at least 20% each quarter this year compared to 2022.
Analysts suggest that Amazon, alongside its top competitor Walmart.com, has solidified its position as a preferred destination for online shoppers, thanks to its strategic investments in fulfillment centers, warehousing, and expedited delivery services.
Arun Sundaram asserts that same-day and one-day delivery are pivotal to e-commerce growth, and when coupled with advertising revenue, they will play a substantial role in enhancing Amazon’s profit margins over the next three to five years.
Scott Devitt, an analyst at Wedbush, predicts that Amazon’s swift delivery options will not only help maintain or expand its market share but also fend off competition from newer e-commerce players like Shein, PDD Group’s Temu, and ByteDance’s TikTok Shop.
Analysts estimate that Amazon’s North American retail business is poised to achieve $85.9 billion in revenue for the third quarter, marking a 9% increase compared to the previous year, according to LSEG estimates. In contrast, analysts expect Walmart to report a 1% decline in e-commerce revenue for the third quarter when it releases its report in November.
