October 24, 2013 9:27 pm

Amazon pays for keeping up sales momentum

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Amazon chief executive Jeff Bezos©Getty

Amazon chief executive Jeff Bezos

Amazon said its sales growth in North America was accelerating and highlighted the importance of its Prime free shipping plan as it reported a loss that analysts suggested was linked to its delivery costs.

The US online retailer beat analyst expectations with a 24 per cent year-on-year rise in global revenue to $17.1bn in the quarter to the end of September, including a 31 per cent increase in sales in North America.

The figures helped to push its shares up 8.4 per cent to $360 in after-hours trading on Thursday as investors, who are used to Amazon’s willingness to win customers by losing money, brushed off a net loss of $41m.

Jeff Bezos, Amazon’s founder and chief executive, said Prime, which gives customers unlimited free shipping once they pay a fee – $79 per year in the US – had helped persuade customers to shop more with the company.

Mr Bezos said Amazon had “signed up millions of new Prime members” in the past 90 days, the first time the famously secretive company has put even a very rough number on Prime expansion.

Sucharita Mulpuru, an analyst at Forrester Research, said Prime was helping Amazon to win a larger share of consumers’ spending but also costing the company a lot of money.

She estimated that it loses $1bn-$2bn a year and calculates that delivering an individual package – including picking, packing and shipping – costs Amazon $8 to $10.

Amazon’s losses were also fuelled by big investments in new warehouses, data centres and its Kindle devices. The company has also bought rights to movies and television shows for its Instant Video service, which it offers for free as a further enticement to Prime customers.

Tom Szkutak, chief financial officer, said on Thursday: “We think it’s certainly helping the Prime membership numbers you are seeing.”

Amazon also offers free shipping to customers who spend more than a certain amount on a basket of goods but this week – ahead of the end-of-year shopping season – it raised the US threshold from $25 to $35, the first increase in a decade.

Ms Mulpuru said: “I think this is a little bit of a harbinger that they are nervous about [profit] margins.”

The quarter marked Amazon’s second consecutive net loss: in the three months to the end of June Amazon reported a net loss of $7m.

But its sales outpaced the broader ecommerce market. According to research group eMarketer, US online sales grew 16 per cent to $60.7bn in the third quarter of this year.

In the US, the recently-ended government shutdown has heightened concerns among retailers that consumers will spend only modestly in the crucial end-of-year shopping season.

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