Amazon could wipe out next quarter’s profit with $4bn Covid-19 expenses

1 May 2020368 Views

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While Amazon saw significant sales growth in the last quarter as pandemic shopping surged, the company plans to spend $4bn on expenses related to Covid-19.

On Thursday (30 April), Amazon released the earnings figures for its first fiscal quarter of 2020. It showed significant sales growth as people turn to online shopping during the Covid-19 pandemic, but also increased costs for the business.

Amazon boss Jeff Bezos said that “under normal circumstances” the company would expect to make around $4bn in operating profit next quarter. But, as these “aren’t normal circumstances”, the company anticipates spending at least that amount on expenses related to Covid-19.

“If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small,” he added.

Bezos said the company will be investing in PPE for staff, enhanced cleaning of Amazon facilities and “less efficient process paths” that allow for better physical distancing.

“I’m confident that our long-term oriented shareowners will understand and embrace our approach, and that in fact they would expect no less,” he added.

‘The hardest time we’ve ever faced’

In Q1 of 2020, Amazon topped $75bn in sales, which is above Bloomberg’s forecast of $73.7bn and marks a 26pc increase on this period last year. However, operating income fell from $4.4bn to $4bn year on year, while earnings per share stood at $5.01, compared to the forecasted figure of $6.27.

The company said that it could deliver operating income of as much as $1.5bn in Q2, which would be just under half of the $3.1bn that Amazon delivered in Q2 2019. The firm expects net sales to be between $75bn and $81bn next quarter, which is a projected growth of between 18pc and 28pc over last year’s figures.

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In March and April this year, the company created 175,000 new jobs in its fulfilment and delivery network to meet increased customer demand.

For the first time ever, Amazon Web Services (AWS) topped $10bn in quarterly revenue, a growth of 33pc on last year’s figures. According to CNBC, Alibaba, Google, IBM, Microsoft and Oracle continue to trail behind AWS in terms of cloud services revenue. In the latest quarter, AWS accounted for 13.5pc of Amazon’s total revenue.

“From online shopping to AWS to Prime Video and Fire TV, the current crisis is demonstrating the adaptability and durability of Amazon’s business as never before,” Bezos said. “But it’s also the hardest time we’ve ever faced.”

Focusing on customers

For the duration of the Covid-19 crisis, Amazon said that it plans to prioritise the stocking and delivery of essential items to ensure that household staples are delivered the fastest.

“We’re acting aggressively to protect customers from bad actors and have removed over 1m offers from our stores due to Covid-based price gouging,” the company added. “We’ve suspended more than 10,000 selling accounts globally for violating our fair-pricing policies.”

The company said that it is also offering information through Alexa to keep users updated on the latest guidance and advice. In some regions, Alexa can assist users who are worried that they may have contracted Covid-19, by asking questions about the person’s symptoms and possible exposure.

Amazon added that AWS is supporting the White House’s Covid-19 high-performance computing consortium to provide computing resources to advance research on diagnosis, treatment and potential vaccines.

AWS is also working with edtech and education services company Blackboard to help the business scale its solution to 50 times its usual capacity to meet the global surge in daily users.

Kelly Earley is a journalist with Siliconrepublic.com

editorial@siliconrepublic.com