Amazon’s third quarter earnings report stunned analysts with reported revenue of $96.1 billion over the 90-day period, which is nearly $4 billion higher than expectations. It led one analyst at Seeking Alpha to describe Amazon as “The Never Ending Growth Machine”.
With all of that revenue comes increasing expenses, and for the foreseeable future, Amazon is focusing on employees safety and faster delivery times.
In the fourth quarter of this year, Amazon is planning to spend $4 billion on keeping employees safe. “We welcomed 250,000 permanent full time and part time employees just in Q3 and have already added about 100,000 more in the first month of Q4. I will note that these are permanent jobs,” Brian Olsavsky, Senior Vice-President and Chief Financial Officer told reporters during Amazon’s earnings report conference call. As a result of having so many more employees, Amazon has to spend more to make sure they are working in a safe environment. “Our expenses (for employees safety) in Q3 were estimated to be around $2.5 billion and we are seeing closer to $4 billion in Q4. The majority of that is due to the expansion of our operations. So things like productivity. There’s productivity drags for things like new hire ramp, social distancing, extending break periods, things that we can quantify. We said we need to look at this as a change in our process. There’s more direct cost around cleaning and supplies, testing and those are the main things I would say,” Olsavsky added. So far in 2020, Amazon says it has spent more than $7.5 billion on COVID-19 related employee safety.
With more than $96 billion in sales, Amazon realizes it needs expanded capacity to deliver all of those products. As a result, it will spend half of its capital expenditures on improving transportation. “The third-party shipping, we rely on third-party shippers. We’ve great partnerships around the globe with third-party shippers and we know that their capacity will be tight as well as ours,” Olsavsky reported. “We do feel good that we’ve invested quite a bit in our own capacity and you just mentioned that, about half of our CapEx is going to expanding transportation. A lot of the people that we’re hiring are also focused on transportation. On CapEx levels, again we’ve grown our fulfillment and logistics infrastructure 50% this year. We’ll see again what that implies for next year. We do see continued expansion and CapEx specifically in transportation area.”
Amazon also plans to focus on what it calls “third party” sellers, which is sellers who use Amazon.com for e-commerce only. Third party sellers keep and maintain products in their own warehouses, and are responsible for delivering the products to customers on time. Amazon does not handle those products at any time. “Third party sellers, who as I mentioned are largely comprised of small and medium sized businesses, continue to be important part of our offering to customers,” Olsavsky told reporters. “Our 3P sellers services revenue continue to grow faster than online stores revenue. With particularly strong growth this quarter in Fulfillment By Amazon, as we return to similar mix of FBA as a percentage of total third party units as we’ve seen prior to COVID. Third party units continue to represent over half of overall unit volume increasing to 54% of the total unit mix in Q3.
“We’re investing heavily to support sellers and are pleased to report that over half a million sellers are seeing record sales in our stores this year,” Olsavsky said.