Amazon Tells Investors To ‘Take A Seat’ As Spending Rises
Sitting in the sweet spot as Amazon takes advantage on demand for online goods, groceries and cloud services during Coronavirus lockdown
Amazon is reaping the rewards during the Coronavirus pandemic as it capitalises on the e-commerce demand for online deliveries, cloud services, and even groceries.
The giant online retailer posted a huge increase in first quarter revenues, but this was offset by a decline in profits, and a warning that the firm is spending an eye watering $4bn in Covid-19 related costs.
Amazon has not had things all its own way during the Coronavirus pandemic however. It emerged it is using thermal cameras to screen staff from a blacklisted Chinese firm; the firm had to close its warehouses in France after a court ruling; and it has been facing industrial unrest from its staff in its US warehouses.
Revenue surge
Despite this, Amazon has posted a healthy set of financial results for its first quarter.
For the first quarter ending 31 March Amazon made a net profit of $2.5bn, down from a profit of $3.6bn in the same year-ago quarter.
Revenues meanwhile surged 26 percent to $75.5bn from $59.7bn a year earlier.
And it said that in this second quarter, despite global lockdowns, it could see a 28 percent rise in revenue to $81 billion.
Amazon seems to have done well with grocery sales in March (the firm owns Whole Foods Market); but spending on clothing has declined during the lockdown, but household staples and home office supplies have risen.
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And in March the number of people who streamed video on Amazon for the first time nearly doubled. Subscription revenue grew 28 percent to $5.6 billion in the first quarter.
Advertising and other revenue was up 44 percent in the first quarter to $3.9 billion.
Menwhile Amazon Web Services (AWS) is seeing demand vary by industry. Hospitality and travel customers severely cut their spending , but remote education and entertainment services had much higher AWS usage, and overall revenue increased 33 percent to $10.2 billion.
Heavy spending
Amazon also warned investors it would be spending heavily ($4bn) going forward, which will impact profits.
Indeed, Amazon has hired an extra 175,000 staff in the past quarter alone.
And remember, when Jeff Bezos started the firm back in the mid 1990s, he frustrated shareholders as his business plan revealed he did not expect Amazon to make a profit within its first five years of trading.
Indeed, Amazon did not officially make a profit until late 2001. And now he is warning investors that they will have to take a backseat for a while.
“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, but it’s also the hardest time we’ve ever faced,” said Bezos.
“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,” he said. “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,” he warned. “Under normal circumstances, in this coming Q2, we’d expect to make some $4bn or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4bn, 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,” said Bezos.
“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,” he said. “I’m confident that our long-term oriented shareowners will understand and embrace our approach, and that in fact they would expect no less.”
Amazon last month revealed it was building its own coronavirus testing facility in order to monitor the health of its staff.
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