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Online retail giant Amazon reported a decline in profit in the third quarter of 2019 following the launch of its one-day shipping service.
In an effort to outmaneuver its competitors, Amazon rolled out its new service promising decreased delivery time from two days to one. However, unlike rival company Walmart’s two-day shipping service, customers have to pay a yearly subscription fee of $119 to avail of Amazon’s new service.
Deducting liabilities and the expenses for the company’s operations, Amazon’s profit took a dive, dropping 26% compared to last year’s third quarter figure. This is primarily due to the $1.5 billion price tag on its new shipping service, costing Amazon approximately twice its projected expenses.
Amazon CEO Jeff Bezos defended the company’s move, saying it was a huge investment for Amazon but that it was for the best interest of the customers. In fact, customers have given positive responses to the one-day shipping service; and despite the profit downgrade, the company reported a 24% increase in revenue or raw gain from its products and services.
Amazon predicts that its fourth quarter revenue will range from $80 billion to $86.5 billion, which is lower than the estimated $87 billion business analysts predicted for the company. Nevertheless, Amazon’s management is confident that the company’s new service will yield good results in the long run.
According to a business expert, Amazon’s projection might prove accurate. The expert believes that Amazon’s willingness to make temporary sacrifices for its long-term earnings remains one of the company’s strengths.