Amazon Revenue Up 26%, but Plans to Spend Billions Next Quarter

Amazon Revenue Up 26%, but Plans to Spend Billions Next Quarter

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

Amazon CEO Jeff Bezos shifted the online giant’s first quarter earnings release away from the money it made in the first three months of the year, and toward what it plans to spend over the next three months. For the quarter, Amazon’s operating income was $3.9 billion. Bezos says he plans to spend all of it, and maybe even a little more, on keeping his employees safe and continuing to deliver products as quickly as possible to customers.

“Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit,” Bezos explained. “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.”

In the next quarter, Amazon will prioritize the stocking and delivery of essential items, including staples for homes during the quarantine and medical supplies, increase order capacity for food-related items it sells through Prime Now and Amazon Fresh, and crack down on third-party sellers who are price gouging during the pandemic.

Amazon’s Chief Financial Officer Brian Olsavsky said the first quarter was difficult for Amazon because it did not have enough time to prepare for the scale of the pandemic. The company knows the holiday season and Prime Day are extremely busy, but this surge in demand came very quickly. “With our seller community and our suppliers, what we generally have experienced getting ready for spikes in demand for known events, like the holiday season and Prime Day, we also generally spend months ramping up for these periods,” Olsavsky said. “Beginning in early March, we experienced a major surge in customer demand. Particularly for household staples and other essential products, across categories such as health, and personal care, groceries and even home office supplies. At the same time we saw lower demand for discretionary items such as apparel, shoes, and wireless products. This large demand spike created major challenges in our operations network.”

Amazon has already spent more than $1 billion on researching ways to deliver products within one day, and next quarter will mark the one year anniversary of that project. Olsavsky believes that expense may be cut in the short term so Amazon can focus its spending on worker safety. “Most of it is hitting in people cost, both in productivity and also in wages and relief funds and all. So can’t really tell how long that will last. It’s probably good that I am only – we’re only giving guidance for Q2 at this point. We’re going to probably learn a lot more in the next few weeks, next few months. And we’ll continue to update this, but for now, most of what we see are temporary cost in the scheme of things, but certainly very expensive temporary costs. And also ones that we’re not sure how long they’ll last,” Olsavsky explained.

Amazon did not discuss its B2B offering, Amazon Business, during the conference call, instead focusing on its employees, essential items, and faster delivery efforts. It also did not provide guidance for the rest of the year, saying the economy is so uncertain that it could not be accurate. In early trading on Friday morning, May 1, Amazon stock dipped $150 a share and is currently selling at $2,330 a share.


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