Amazon Prime One-Day Shipping Service Is Expected to Cost the E-Tailer $1.5 Billion This Holiday Season

As it rolls into the holiday season, Amazon might have bitten off more than it can chew.

On Thursday, the e-tailer reported that it had exceeded the initial $800 million investment in its Prime one-day shipping. In its Q3 earnings call with investors, CFO Brian Olsavsky said that the company expects to spend about $1.5 billion in costs associated with the service over the next quarter.

“There’s a lot of tangential costs,” the exec said, noting “transportation cost, the cost of expanding our transportation capacity, things like adding additional pulls in shifts in our warehouses [and] the cost of forward deploying inventory closer to customers.”

He added, “But by and away, the biggest expense is on the actual transportation cost, so we’ve built that into our Q4 guidance estimate.”

Despite the rise in expenses, Olsavsky added that Amazon was nonetheless upbeat as it moved into the holiday season, noting customer responses to the one-day shipping service.

“You can see it in our revenue acceleration and also in our unit growth acceleration,” Olsavsky said. “We’re expecting that it will be, again, a great help to customers in Q4. We have seen Prime members increase their orders [and] spend more, so they must also see it as a real help to them in their daily lives.”

For the third-quarter ended Sept. 30, the Seattle-based firm posted earnings of $4.23 per diluted share — lower than Wall Street’s predicted earnings per share of $4.62. Income decreased to $2.1 billion compared to $2.9 billion for the same period a year ago. It was the first year-over-year decline in Amazon’s earnings since June 2017.

On the other hand, sales rose 24% to $69.9 billion in Q3 versus $56.6 billion during the same period in 2018. Comparatively, analysts had estimated revenues of $68.8 billion.

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