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Amazon Drops a Bombshell -- and It Could Be a Game Changer

By Danny Vena - Apr 29, 2019 at 10:05AM

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The e-commerce giant wants to make one-day shipping standard for Prime members. (AMZN -1.62%) released its first-quarter earnings after market close on Thursday. The e-commerce titan reported slowing revenue of $59.7 billion, up 17% year over year, and net income of $3.6 billion, resulting in earnings per share (EPS) of $7.09, which soared 117%. Both numbers topped analysts' consensus estimates that called for revenue of $59.65 billion and EPS of $4.72.

During the subsequent conference call, Amazon dropped a bombshell that could have far-reaching implications, not only for rivals in the e-commerce industry but for its brick-and-mortar competitors as well. In a move that could reignite the company's slowing revenue growth, Amazon said it was working to shorten the standard delivery option for Prime members from two days to just one day.

A driver in an Amazon Prime delivery van showing a smartphone to a woman standing outside.

Amazon wants to shorten standard Prime delivery to one day. Image source: Amazon.

Speedier delivery

Brian Olsavsky, Amazon's CFO, provided details:

We're currently working on evolving our Prime free two-day shipping program to be a free one-day shipping program. We're able to do this because we've spent 20-plus years expanding our fulfillment and logistics network, but this is still a big investment and [we have] a lot of work...ahead of us.

Amazon has been offering two-day or faster shipping for years. Depending on the product and the markets, the company has offered one-day or same-day shipping, even going as far as to offer one- or two-hour shipping for Prime Now, which delivers household essentials.

The new one-day shipping will be available on about 100 million items that previously shipped under the two-day window. Over the past month, Amazon has already "significantly expanded" the selection of items, as well as the number of zip codes eligible for one-day shipping. Amazon plans to roll out the new expedited shipping in its largest U.S. market before expanding the benefit internationally. It expects much of the build-out to support the move will occur in 2019.

Olsavsky said "This is all about the core free two-day offer morphing into -- or evolving into a free one-day offer," and Amazon plans to spend an incremental $800 million to fund the initiative in the second quarter alone. The company is betting that the resulting increase in Prime subscribers and added purchases will cover the additional cost.

Shipping elasticity

Amazon is hoping that decreasing the amount of time it takes most orders to arrive will encourage customers to make more purchases from its e-commerce website. Rather than popping out to the store for some items, shoppers might be content to have them arrive the following day.

The company is relying on a concept called shipping elasticity. In its simplest form, this means the shorter the shipping time, the more likely customers are to buy additional items.

RBC Capital Markets analyst Mark Mahaney was among the analysts that applauded the idea. He said, "This is big news, if you believe in shipping elasticity, which we do. The faster you ship, the more people buy...This could be a key growth catalyst for Amazon for some time."

A plane with the Prime Air logo.

Image source: Amazon.

Revenue growth is slowing

Revenue growth has been getting harder to come by for Amazon, which isn't surprising considering the company's massive existing sales base. During the first quarter, Amazon generated net sales of nearly $60 billion, so it's understandable the company would find it difficult to maintain its historic growth increases.

Amazon's year-over-year revenue growth has slowed in each of the past four quarters, recently clocking in at 17%, down from 43% growth in the prior-year quarter. The company is hoping that by offering items more quickly, it can at least slow its declining revenue growth or potentially even accelerate it.

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