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Amazon to spend $1.5B on 1-day Prime delivery program in Q4

Amazon.com Inc.'s CFO Brian Olsavsky said Oct. 24 that the company plans to spend $1.5 billion on its free one-day Prime delivery program in the crucial fourth quarter, nearly double what the company spent on the initiative in the second quarter.

Olsavsky told analysts in a conference call that the $1.5 billion investment will be poured into transportation costs, adding additional polls and shifts in Amazon warehouses and "the cost of forward deploying inventory closer to customers."

The additional spend comes on top of the company's more than $800 million investment in the program during the second quarter, due largely to shipping and warehouse expenses and moving Amazon's network closer to customers. The one-day program cuts Prime delivery from two days to one.

Analysts have cautioned that Amazon could run into serious logistical obstacles as it strives to meet the tighter shipping deadlines, in part due to the company's reliance on a transportation network of third-party carriers.

But Olsavsky remained upbeat about the program, saying on the Oct. 24 call that Amazon has seen "Prime Members increase their orders, spend more, so they must also see it as a real help to them in their daily lives."

The comments come as the online giant reported third-quarter diluted EPS and net income that missed analysts' expectations. Amazon's third-quarter revenue increased 24% year over year, beating estimates.

Andrew Lipsman, a principal analyst with eMarketer, said in an interview that the company's plans to spend $1.5 billion on the program in the fourth quarter were not surprising, adding that Amazon is taking a long-term view on an initiative that could be "transformative."

"You're going to see a hit on the bottom line for the next couple of quarters for sure, it's just going to be worth it," he said.

Lipsman added that Amazon's investments in the program will continue into 2020 but will eventually "pull back in Q1 and Q2 to more reasonable levels."