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Amazon reports drop in third-quarter profits – and major investment in UK renewable energy to power its retail platforms

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An existing Amazon wind farm in Texas
An existing Amazon wind farm in Texas
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Amazon reports drop in third-quarter profits – and major investment in UK renewable energy

Amazon today reported a drop in third-quarter profits despite a 24% rise in net sales, as it announced investments in UK renewable energy and a raft of new devices featuring its Alexa voice assistant.

 

The retailer announced what it said was the largest corporate wind power purchase agreement in the UK, which will power data centres that support its retail platforms as well as the websites of AWS (Amazon Web Services) clients, alongside new devices and services around its Alexa voice commerce-enabling services, retail deliveries, the Internet of Things, and entertainment streaming.

 

The retailer, listed Elite in IRUK Top500 research, said net sales came in at $70bn (£54.5bn) in the third quarter, up by 24% from $56.6bn (£44.1bn) in the third quarter of 2018. Operating income of $3.2bn (£2.5bn) was 13.5% down from $3.7bn (£2.9bn) at the same time last year. Net income of $2.1bn (£1.6bn) was 27.6% down from net income of $2.9bn (£2.3bn) last time.

 

Its new feature list for the quarter included a new range of Echo devices, which feature its voice commerce-enabling Alexa assistant. More than 85,000 smart home products can now be controlled with Alexa - which will soon feature its first celebrity voice, from Hollywood star Samuel L Jackson – while General Motors is to embed the Alexa experience into new vehicles. Also new during the quarter were a range of new products featuring its Fire TV streaming media player, which now has 37m users around the world, and the launch of Amazon Music HD. In the US, Amazon announced new retail delivery initiatives including a personal shopper fashion service and faster AmazonFresh delivery in four new US cities.

 

The company also announced Amazon Sidewalk, a low bandwidth secure network that can be used used to control low-power Internet of Things devices from smart lights to sensors.

 

Jeff Bezos, Amazon founder and chief executive, said: “We are ramping up to make our 25th holiday season the best ever for Prime customers - with millions of products available for free one-day delivery.

 

“Customers love the transition of Prime from two days to one day — they’ve already ordered billions of items with free one-day delivery this year. It’s a big investment, and it’s the right long-term decision for customers. And although it’s counterintuitive, the fastest delivery speeds generate the least carbon emissions because these products ship from fulfillment centers very close to the customer — it simply becomes impractical to use air or long ground routes. Huge thanks to all the teams helping deliver for customers this holiday.”

 

Amazon’s renewable energy plans

The retailer signed up to a new Climate Pledge during the quarter, including the commitment to reach 80% renewable energy by 2024 and 100% renewable by 2030. It will invest $100m in nature-based climate solutions and reforestation and buy 100,000 electric delivery vehicles from Rivian. Today it said that it had signed up to the largest corporate wind power purchase agreement in the UK, on the Kintyre Peninsula in Scotland. A new Amazon wind farm there is expected to provide 50MW of renewable capacity, generating 168,000 megawatt hours (MWh) of clean energy. At the same time, it said it would open two new solar projects in the US, in North Caroline and Virginia, which are expected to supply more than 500,997MWh of energy a year. Energy from these are expected to start powering Amazon Web Services data centres from 2021 - supporting Amazon’s platforms and those of AWS customers around the world.

 

Kara Hurst, director of sustainability at Amazon, said: “In addition to the environmental benefits inherently associated with running applications in the cloud, Amazon is committed to minimising our carbon emissions and reaching 80% renewable energy use across the company by 2024.

 

“We’ve announced eight projects this year and have more projects on the horizon – and we’re committed to investing in renewable energy as a critical step toward addressing our carbon footprint globally. With nearly 70 renewable energy projects around the globe – including 54 solar rooftops – we are making significant progress towards reaching Amazon’s company-wide commitment to reach 100% renewable energy by 2030.”

 

Paul Wheelhouse, MSP and Scotland’s minister for energy, connectivity and the islands, said: “Agreements like this Power Purchase Agreement speak volumes about the levels of confidence from major employers and businesses across all sectors in Scotland’s renewable energy infrastructure.

 

“In 2018, Scotland was able to achieve a record level of renewable energy generation, with revised data showing that 76.3% of Scotland’s electricity demand was met from renewable sources, and onshore wind energy alone was capable of meeting more than 50% of Scotland’s gross electricity demand. These fantastic figures illustrate the importance of onshore wind in our current energy mix, as a highly cost effective source of generation, but also the leading role it will play in meeting our future energy needs, too.”

 

Industry reaction

Nick Everitt, director of advisory at Edge by Ascential, said: "At the rate Amazon is currently expanding, we estimate it will be worth €515bn globally by 2024. In Europe, it will grow to become the second biggest retailer, beaten only by Schwarz Group. To achieve this, Amazon is likely to aggressively ramp up its investment in the grocery sector over the next few years. We already know there are plans to expand its Amazon GO stores in the US and Europe, with the UK launch rumoured to be imminent.

 

"Once the technology is full tested it is also very likely we’ll see Amazon license its cashierless technology to other retailers, which will be a far more sophisticated and simpler solution compared to creating it themselves. It is still very likely that Amazon will make a retail acquisition in the UK or Europe in the near future. This would be an instinctive move for Amazon, which needs the physical space to gain scale and to reach a wider base of consumers, as well as providing a cost-effective delivery and fulfilment model. Its current partnership with Morrisons in the UK make it a likely contender, while the failed Asda merger also puts Sainsbury’s in the running as its southern base and more premium offering has greater parity with the Wholefoods acquisition in 2017.”

 

Jon Reily, former head of ecommerce at Amazon and digital consultant at Publicis Sapient, said: "Amazon is spending more than $2 billion on logistics capabilities to offer one-day shipping nationwide to its Prime customers. It also increased its purchases of property and equipment 40% to nearly $5 billion. On the investor call they said that the changes to 1-day shipping were a "drastic change" to Amazon’s logistics network topology. When asked directly if there were plans to offer these services externally to non-Amazon orders, the question was not directly answered and they said their focus was “having enough total capacity to handle Amazon orders.”

 

"This shows that Amazon is thinking long-term for its Amazon Logistics (AMZL) division and its goal is to own end to end all of its shipping needs from warehouse to last mile. The question is will Amazon follow its previous pattern of creating a program or service to solve its own needs and then once perfected offer that service to outside customers. This has been a pattern for Amazon in the past with AWS and Amazon Advertising. Is AMZL next?"

 

Herbie King, head of Amazon strategy at Croud, said: “Advertising is rapidly becoming a key profit engine for Amazon’s overall business, and it won’t be long before we see it break away from the “Other” revenue category. It’s even been predicted that Amazon’s ad business will surpass AWS in 2021, which at the moment continues to be the company’s biggest contributor to financial success. Once just a niche part of Amazon’s sprawling empire, its ad business is now big enough to merit its own invite-only conference, AdCon, which debuted earlier in October. Since the simplification of its branding last year, it has continued to beef up offerings. In May, Amazon announced its acquisitions of Sizmek’s ad server and Dynamic Creative Optimisation business, helping advertisers measure effectiveness and aid in personalising ads using data on the platform.

 

“Amazon is quite an attractive platform for advertisers and brands; reaching people right as they’re ready to pull the trigger on a purchase, meaning its digital ads unit is being increasingly considered as a contender to take on the duopoly of Facebook and Google. eMarketer has forecasted Amazon could generate $7bn in search ads this year alone, giving them a 13% share of the market. It’s still nowhere near Google’s 73% share, but it’s expected Amazon will continue to eat into this share into 2021, by which time it’s predicted Amazon’s share will increase to 16% and Google’s will slip to 70%.

 

And Aaron Goldman, chief marketing officer at www.4cinsights.com/&source=gmail&ust=1572080840120000&usg=AFQjCNGOnEh2W70lLSrO_VUjqk3_k_RoSw">4C Insights, said: “The ‘other’ category which is primarily comprised of advertising revenue was a bright spot in Amazon’s Q3 earnings announcement with 37% growth to $3 billion. Amazon is quickly ramping up its advertising platform and tapping into search marketing budgets. Amazon has the unique ability to close the loop from purchase intent to sales and allow brands use that data for ad targeting and measurement.”

 

Image courtesy of Amazon

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