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Amazon net profit down with more investments on video and fulfillment centres

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Amazon’s net profit stood at $252 million for the quarter ended September 2016, down 70.59% from the preceding quarter. Net profit was lower as Amazon continues to invest in more fulfillment centres and costs related to video associated marketing.

Net sales, however, stood at $32.7 billion growing 29% from $25.4 billion in the same quarter last year. On a sequential basis, net sales increased 7.57% from $30.4 billion.

The company’s CFO, Brian Olsavsky, reiterated India as an important area of investment to its operations. “So what you’re seeing essentially in the second half of this year is a step-up investment primarily around digital content and also the fulfillment center investment, but also things like Echo and Alexa which we’re adding a lot of resources to, India and AWS as we add people there to support additional service,” he said in a call with analysts.

More notes from the analyst call:

Amazon will hold world wide rights for content created for Prime Video: Amazon said that it will be holding worldwide rights for video content created of Prime Video. It has been doubling down on getting India-specific content and has and Huffington Post reported that directors Vishal Bhardwaj and Vidhu Vinod Chopra have been brought in to create TV shows for Prime Video.

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“We consider that to be very valuable as opposed to, versus licensing many times by country, the third-party rights to content that we don’t create ourselves,” Olsavsky commented.

Addition of fulfillment centres: Amazon added 18 fulfillment centers and they’ve added five more in October globally. “For the year we’ll add 26. Most of those are in North America,” Olsavky said. Amazon is opening six new FCs in Chennai, Mumbai, Delhi and Jaipur to expand its presence in India. Currently, it has 21 FCs compared with 10 fulfillment centers for the first three quarters of last year.

Amazon Fresh: In the quarter, Amazon launched Fresh, its grocery delivery business, in in Northern Virginia, Maryland, Dallas and Chicago. “So we continue to believe consumables, groceries are a key part of the offer to customers and we are playing with very different models to see which works and for what needs,” Olsavsky commented.

In India, the company launched grocery delivery services via an app called Amazon Now in Bangalore. Amazon sources the groceries from offline stores such as Big Bazaar, Nature’s Basket, Reliance Fresh and In and Out.

Changes in pricing of fulfilled by Amazon (FBA): Olsavsky also provided some colour on changes to the FBA programme. For the holiday season, sellers were incentivized to have the most valuable products for holiday in the warehouse in the Prime space. “And the biggest issue you’re trying to get at is having the most valuable products for holiday in the warehouse in the Prime space and not having the warehouse filled with things that may not sell until after the New Year. So we are trying to incentivize that behavior. We’re also trying to incentivize getting inventory into the warehouse quicker,” he added.

Amazon Vehicles: The company also launched Amazon Vehicles, a car research destination and allows users to search and buy parts online. “We’ll try to build a one-stop shop for vehicles as an extension to the automotive store which engages customers to add information about their cars in their garage and which makes it actually easier to shop for parts and accessories for your particular vehicle,” Darin Manney, head of investor relations said.

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Download: Press release | Transcript 

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