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Amazon misses the mark with 14% drop in profits

The company warned that operating income in the next quarter is expected to be between US$1.2bn and US$2.9bn, compared with US$3.8bn last year

Amazon parcel
The online retail giant ships 10bn packages a year

Amazon.com, Inc’s (NASDAQ:AMZN) shares fell in US after-hours trade on Thursday after the online retail giant posted its first drop in profits in two years, citing rising costs for its ambitious scheme to deliver packages in one day.

In third-quarter numbers, released after the New York close on Thursday, the online merchant said operating income was down 14% to US$3.2bn, compared with US$3.7bn in 2018.

Net sales for the firm, which ships around 10bn packages per year, were up 24% to US$70bn.

Amazon’s chief financial officer Brian Olsavsky said in a call with analysts that the company expects one-day delivery costs to almost double to US$1.5bn during the Christmas holidays, according to Reuters.

Sales growth is also expected to slow as the company warned that operating income in the next quarter is expected to be between US$1.2bn and US$2.9bn, compared with US$3.8bn in the fourth quarter of 2018.

Amazon's revenue continues to grow in a "probably alarming" rate for competitors, according to Nicholas Hyett, Equity Analyst at Hargreaves Lansdown, with robust cash generation supporting heavy investment to improve the core business.

"Whether all the extra investment will be worth it in the end is perhaps open to question, especially given the lacklustre sales guidance for next quarter," analysts said, adding that it has been "foolish" to doubt Amazon in the past.

Amazon shares were down 4% to US$1,712 on Friday morning, having dropped 7% in after-hours trade Thursday.

--Adds shares, broker's comment--

Quick facts: Amazon.com, Inc.

Price: 1739.21 USD

NASDAQ:AMZN
Market: NASDAQ
Market Cap: $862.3 billion
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