(This article was originally posted on PYMNTS.com).
Last week, Amazon released its Q4 earnings report for 2016, and while the company posted revenue of $43.7 billion, the reality fell below The Street’s $44.7 billion expectations, sending shares down 4 percent in after-hours trading as a result.
Looking at Amazon’s year-end numbers, it’s clear that at least part of the reason Amazon lost out a bit in Q4 has to do with the retail giant’s giant cost of shipping for the year.
While in 2015, Amazon showed a net shipping loss of $5 billion, said GeekWire, shipping costs grew over 40 percent year on year, hitting $7.2 billion by the end of 2016. Looks like free two-day shipping is starting to take a toll on Amazon’s revenue, especially as the number of goods shipped for free continues to grow.
CEO Jeff Bezos said in the company’s year-end earnings release that more than 50 million items sold on Amazon’s retail site are currently eligible for free two-day shipping, representing an increase of 73 percent from the previous year.
“We’re doing fulfillment for ourselves and for our partners at a much greater clip,” said Amazon CFO Brian Olsavsky in a conference call. “It’s the usual impact of the additional free shipping programs, as well as the shift toward a higher Amazon Fulfilled growth rate.”
Still, Amazon managed to post a net profit of $2.4 billion in 2016, way up from $596 million in 2015. This was largely due to the $12.2 billion in sales Amazon’s AWS cloud computing service raked in over the last year. AWS’ operating profit for the year alone hit over $3.1 billion.
Amazon has also been hard at work building out its logistics capabilities in the last year or so, including Prime Air and ocean freight, trucking, drones and flying warehouses (seriously), which could eventually help quell shipping cost concerns by cutting out payments to third-party logistics providers.