It turns out that one-day shipping is an expensive endeavor. Amazon reported worse-than-expected profits in its latest quarter, thanks in part to an aggressive effort to slash delivery times down to one day for items ordered on its site.
The e-commerce giant said on Thursday that profits during its second quarter rose 3.6% to $2.6 billion from the same period a year ago. That equates to $5.22 per share, which fell far short of the $5.57 per share that Wall Street analysts had anticipated.
Amazon’s shipping costs surged by 36% to over $8 billion in the last quarter. That is a sharp uptick when compared with the previous three quarters, when shipping costs had risen by around 20%. Amazon has stepped up its investment in its shipping capabilities after promising in April that it would make one-day shipping the new normal for members of Amazon Prime, rather than the two-day shipping that it has long offered.
The company said that it is making progress on the initiative and that free one-day shipping is now available to Prime members on more than 10 million items. “Customers are responding to Prime’s move to one-day delivery—we’ve received a lot of positive feedback and seen accelerating sales growth,” said Amazon founder and CEO Jeff Bezos in a statement.
Bezos has made an Amazon Prime membership, which carries a price tag of $119 a year, a staple in over 100 million households across the country. A big part of the draw is free shipping on millions of items. Amazon has sought to stay ahead of the curve here as retailers like Walmart and Target pile on with free shipping offers of their own, which typically require a minimum order size but don’t charge an annual fee.
It’s also a play to satisfy its most impatient customers. Amazon noted on a call with analysts and investors on Thursday that it hopes one-day shipping will cut down on the number of customers who end up leaving Amazon and buying an item elsewhere because it isn’t available for delivery fast enough.
Amazon also saw a rise in marketing costs during the quarter, as well as an uptick in compensation costs as it continues to grow its workforce. Overall costs rose 21% in the quarter.
Sales increased 20% to $63.4 billion, topping analyst estimates of $62.5 billion. However, investors seemed to focus on the disappointing bottom line. Shares of Amazon slid 2% in after-hours trading on Thursday.
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I am a staff writer at Forbes covering retail. I’m particularly interested in entrepreneurs who are finding success in a tough and changing landscape. I have been at Forbes since 2013, first on the markets and investing team and most recently on the billionaires team. In the course of my reporting, I have interviewed the father of Indian gambling, the first female billionaire to enter the space race and the immigrant founder of one of the nation’s most secretive financial upstarts. My work has also appeared in Money Magazine and CNNMoney.com. Tips or story ideas? Email me at firstname.lastname@example.org.