Aggressive Amazon Expansion Limits 2016 Profits

amazon expansion limits profits for 2016
 

Amazon’s 3rd Quarter 2016 profits were cause for concern for some investors, with a steep fall from the prior quarter’s more than $800 million in earnings.

However, investors in Amazon have held a long game strategy for most of the retailer’s existence, so this hiccup shouldn’t cause huge ripples. The loss in profit is easily explained by considerable investment across the globe, just ahead of the 2016 holiday sales season.

Amazon Still on the Rise 

Despite the disappointing figures, Amazon still posted $252 million in earnings, up from $79 million a year earlier. Expensive infrastructure expansion that will ensure more on-time deliveries and shorter wait times for gifts has been consuming a lot of income. Between the 23 new warehouses opened since July (for reference, just three were opened in the first half of 2016), further work on an Amazon-branded shipping arm to help increase holiday shipping capacity and more investment in operations in India, it would seem that the company is building on a much grander plan.

Amazon is also working on things that aren’t related to fulfillment and logistics, including expanding teams for Amazon Web Services, which has been a popular cloud-choice for large corporations, and Alexa, its artificial intelligence engine currently housed inside user-friendly speakers like Echo and Tap.

Although some may be highly disappointed in the third quarter figures, and others may be considering jumping the Amazon investment ship, many believe that making any moves at this point would be extremely premature once they consider where funds were invested.  Projections for 4th Quarter revenue are currently set between $42 billion and $45.5 billion, which will help both bolster 3rd Quarter numbers and fund ongoing programs that may need another year or two to begin to pay out.

Making Smart Moves 

Even though Amazon has been a big name in online retail for almost 20 years, it has only been recently that it became reliably profitable. In fact, this is the sixth consecutive quarter of profit since its IPO. Amazon has always been a company that makes smart moves, even if they cost a bit up front and take a while to realize their full potential. The company has often led the way in fulfillment, marketing and online retail innovations, so the financial hits they’re taking now will likely be minor bumps in the much longer road.

 

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