Amazon Expects Spring Windfall as US Economy Reopens, Posts Record Profits

Amazon
FILE PHOTO: The logo of Amazon is seen at the company logistics centre in Boves, France, August 8, 2018. REUTERS/Pascal Rossignol

Amazon.com Inc posted record profits from pandemic shopping and indicated sales would keep growing even as customers emerged from their homes in the reopening U.S. economy.

Since the start of the coronavirus outbreak, shoppers have relied increasingly on Amazon for delivery of home staples and supplies. While brick-and-mortar stores closed, Amazon has now posted four consecutive record quarterly profits, attracted more than 200 million Prime loyalty subscribers, and recruited over 500,000 employees to keep up with surging demand.

Amazon said it expects operating income for the current quarter to be between $4.5 billion and $8 billion, which assumes about $1.5 billion of costs related to COVID-19.

Shares rose 4% in after-hours trade.

Throughout the pandemic, the world’s largest online retailer has been at the center of safety and workplace issues, with a failed attempt by organized labor to unionize an Amazon warehouse in Alabama and litigation in New York over whether it put profit ahead of employee safety.

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Net sales climbed to $108.5 billion in the first quarter ended March 31 from $75.5 billion, beating analysts’ average estimate of $104.5 billion, according to IBES data from Refinitiv. 

Bezos touted the results of the company’s cloud computing unit Amazon Web Services (AWS) in a press release, saying, “In just 15 years, AWS has become a $54 billion annual sales run rate business competing against the world’s largest technology companies, and its growth is accelerating.”

AWS’s long-time chief Andy Jassy is scheduled to succeed Bezos as Amazon’s CEO this summer. His unit continues to be a bright spot. Just last week, for instance, Dish Network Corp announced a deal to build its 5G network on AWS. The division increased revenue 32% to $13.5 billion, ahead of estimates of $13.2 billion.

Brian Olsavsky, Amazon’s chief financial officer, said many businesses want to outsource their technology infrastructure to AWS. 

“We expect this trend to continue as we move into the post-pandemic recovery,” he said.

Adding to Amazon’s revenue was its growing chain of physical stores, including Whole Foods Market and its first overseas cashier-less convenience shop, opening last month in the London Borough of Ealing. Amazon delved further into healthcare as well with an online doctors-visit service for employers, representing another area it is aiming to disrupt after retail, enterprise technology and Hollywood.

Profit more than tripled to $8.1 billion.

AD SALES GROWTH

Amazon, which saw its stock price nearly double in the first part of 2020 as it benefited from the pandemic, has this year underperformed the S&P 500 market index. Its shares were up about 8.5% year to date versus the index’s 13% gain.

At the same time, spending on COVID-19 and logistics has chipped away at Amazon’s bottom line. The company has poured money into buying cargo planes and securing new warehouses, aiming to place items closer to customers to speed up delivery. It said Wednesday it planned to hike pay for over half a million employees, costing more than $1 billion – and it is still hiring for tens of thousands more positions.

Olsavsky told reporters the company intends to increase spending on video content this year as well. Consumers have been watching content for more hours on Amazon, he said.

While far behind ad sales leaders Facebook Inc and Alphabet Inc’s Google, Amazon is growing its ad business because brands’ placements often result directly in sales, reaching customers who are on Amazon with an intention to shop.

Jesse Cohen, senior analyst at Investing.com, said, “Outside of its core retail and cloud units, advertising revenue is increasingly becoming another substantial growth driver for Amazon.”

Amazon said ad and other sales rose 77% to $6.9 billion, ahead of analysts’ estimate of $6.2 billion.

The company also announced its intention to host its marketing blitz Prime Day in the current quarter. Olsavsky said the reason for this was to attract more customers’ attention and be better for business partners than the company’s more typical July scheduling.

Reporting by Akanksha Rana and Jeffrey Dastin; Editing by Arun Koyyur and Lisa Shumaker; Reuters

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