Amazon Is Showing Massive Jump In Shipping Costs

Jan. 25, 2021 1:59 PM, Inc. (AMZN)110 Comments
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Bluesea Research


  • Amazon has reported rapid growth in its shipping costs, even prior to the pandemic.
  • The shipping costs growth outstrips the growth in online stores and third-party sales.
  • This means that Amazon has had to spend a higher amount on fulfilling every order.
  • The only positive trend in this is that the subscription revenue and advertising revenue are growing rapidly which makes up for higher shipping costs.
  • Amazon's future profitability and margin will depend on how the company is able to manage its shipping costs growth compared to other segments.

Amazon (NASDAQ:AMZN) has ramped up its investments in logistics during the pandemic. However, even prior to the pandemic, the company's shipping cost was growing at over 40% year-on-year compared to 20%-30% growth in its online stores and third-party seller service. This can mean that the company was making higher investments in fulfillment centers and delivery networks to meet future demand. We can also see that the economies of scale are not working. Higher retail sales have not led to lower shipping costs per paid unit.

This trend needs to be closely analyzed to figure out the future margins of the company. There has been a rapid growth in subscription revenue as the popularity of Prime membership increases in the domestic and international markets. Higher retail sales also lead to better advertising revenue. Both subscription and advertising segments are very high margin revenue streams for the company. These segments have subsidized the higher growth in shipping costs. Hence, it will be important to see the future trajectory in these segments in the next few quarters to gauge the improvement in EPS.

Growth in Shipping Costs

In the last two quarters, the shipping costs have shown YoY growth of 68% and 57%. This was to be expected as the company made higher investments to meet rapid growth in customer demands during the pandemic. But even prior to the pandemic, the YoY growth in shipping costs from Q2 2019 to Q1 2020 was 36%, 46%, 43%, and 49% respectively. During the same time period, the YoY online stores growth was 16%, 22%, 15%, and 25% respectively. Hence, Amazon's shipping costs have risen at 20 percentage points more than the online store sales.

Figure 1: Growth in online stores and third-party seller services. Source: Amazon Filings

Figure 2: Growth in shipping costs. Source: Amazon

This article was written by

Bluesea Research profile picture
I have worked in the technology sector for over 4 years. This included working with industry stalwarts like IBM. I have done my MBA in finance and have been covering various blue chip stocks for the past 6 years. Having hands-on knowledge in the technology sector has helped me gain valuable insights into the ups and downs of this sector and predict winners and losers more accurately.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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