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Amazon analysts expect same-day delivery to boost margins in Q3

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LA Post: Amazon analysts expect same-day delivery to boost margins in Q3
October 25, 2023
Arriana McLymore - Reuters

By Arriana McLymore

NEW YORK (Reuters) - Investors will look for signs that Amazon's aggressive expansion of same-day delivery services helped increase its third-quarter profit margin by spurring shoppers to place more frequent and bigger orders.

Same-day delivery is now offered in at least 90 cities, free for Prime members while non-members pay $9.99. The retailer invested heavily in 2020 and 2021 in logistics to make same-day delivery, which it introduced in 2015, available in more places.

When Amazon reports earnings on Thursday, investors and analysts anticipate gross profit margins will rise 2.67% from last year to 47.37%, according to LSEG.

Fast delivery "drives more frequency to Amazon's website," CFRA analyst Arun Sundaram said.

"It drives larger basket sizes for Amazon. Now that Amazon is introducing a lot more everyday essential items, people are finding it very convenient to go on Amazon and buy things like paper towels, food or packaged goods," he said.

Amazon packs its same-day delivery centers with its top 100,000 products. The company in April said it completed a reorganization of its fulfillment network, dividing the U.S. into eight regions to shorten delivery distances and get merchandise to shoppers faster.

"What we find is when we open up same-day (delivery), you generally see customer engagement go up and purchasing go up," Sarah Mathew, vice president of global delivery experience at Amazon, told Reuters in a recent interview. "But the lift of how much it goes up varies from product to product."

The company will continue to build fulfillment centers, expanding same-day service, Mathew said.

Same-day delivery also boosts Amazon.com's website traffic. This positions the retailer to bring in more advertising revenue, which has grown at least 20% each quarter this year compared to 2022.

Columbia Threadneedle Investments analyst Mari Shor said Amazon and its top competitor, Walmart.com, have become go-to destinations for online shopping because of their investments in fulfillment centers, warehousing and speedy deliveries.

Sundaram said that same-day and one-day delivery is key to e-commerce growth, which along with advertising revenue will improve Amazon's margins over the next three to five years.

Scott Devitt, an analyst at Wedbush, said that he expects Amazon's fast delivery will help it maintain or grow its market share as well as fend off newer e-commerce players such as Shein, PDD Group's Temu and ByteDance's TikTok Shop.

"Next-day and same-day (delivery) is going to be much more beneficial to Amazon's volume growth than any degradation that we see from Temu," Devitt said.

Analysts expected Amazon's North American retail business to show $85.9 billion in third-quarter revenue, up 9% compared to last year, according to a LSEG estimate.

By comparison, analysts forecast Walmart will show a 1% decline in e-commerce revenue for the third quarter when it reports in November.

(Reporting by Arriana McLymore in New York; Editing by Cynthia Osterman)

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