Amazon sales jumped 26% in the first three months of 2020 as customers locked in their homes by the novel coronavirus outbreak caused a massive surge in demand for the online service funded and run by Jeff Bezos.
However the costs involved in meeting that demand saw Amazon’s net income for the first quarter fall nearly 31% from the same period in the prior year to US$2.5 billion.
“From online shopping to AWS (Amazon Web Services) to Prime Video and Fire TV, the current crisis is demonstrating the adaptability and durability of Amazon’s business as never before, but it’s also the hardest time we’ve ever faced,” said Jeff Bezos, Amazon founder and CEO. “We are inspired by all the essential workers we see doing their jobs — nurses and doctors, grocery store cashiers, police officers, and our own extraordinary frontline employees. The service we provide has never been more critical, and the people doing the frontline work — our employees and all the contractors throughout our supply chain — are counting on us to keep them safe as they do that work. We’re not going to let them down.
“Providing for customers and protecting employees as this crisis continues for more months is going to take skill, humility, invention, and money. If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small. Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe. This includes investments in personal protective equipment, enhanced cleaning of our facilities, less efficient process paths that better allow for effective social distancing, higher wages for hourly teams, and hundreds of millions to develop our own COVID-19 testing capabilities.
“There is a lot of uncertainty in the world right now, and the best investment we can make is in the safety and well-being of our hundreds of thousands of employees. I’m confident that our long-term oriented shareowners will understand and embrace our approach, and that in fact they would expect no less.”
During the quarter, the company hired more than 175,000 fulfillment workers to help handle the jump in orders, and Bezos said Amazon is continuing to hire.
In addition to the costs of employing people, the business based in Seattle, California, also raised pay for hourly employees, which will cost the company nearly US$700 million as of 16 May, Amazon said in its Thursday release.
Also, much of the demand during the coronavirus quarter was for lower-margin household items such as cleaning products and toilet paper, rather than for “discretionary products” like apparel and technology goods, which also weighed on profits. In mid-March, the final month of the quarter, Amazon temporarily restricted the kinds of products that could be sent to its warehouses to essential goods such as household and cleaning supplies.
“We think that still was the right course of action and as we add capacity, we’re trying to resume more normal operations as far as the shipping of non-essential items” and shipping times, Amazon CFO Brian Olsavsky said on an analyst call on Thursday (US time)
Amazon’s cloud business, Amazon Web Services, brought in US$10.2 billion, which was up 33% from the prior year. AWS is Amazon’s major driver of profit.
The business’ “other” division, which is mainly advertising sales, grew 44% to US$3.9 billion. The ad business was probably helped by the fact that so many people visited Amazon to stock up on goods during the quarter, Tom Forte, senior research analyst with financial services firm D.A. Davidson, told CNN Business.
“I think the Amazon advertising business is going to grow through this or take a lot of share,” Forte said.
Amazon’s stock hit record highs earlier this month, and was up almost 30% year-to-date, outpacing by a large margin the broader market.