Amazon Expects Sales Windfall as US Economy Reopens, Posts Record Profits

Amazon, one of the biggest winners of the pandemic, posted record profits on Thursday and signaled that consumers would keep spending in a growing US economy and converts to online shopping are not likely to leave.

Since the start of the coronavirus outbreak, shoppers have relied increasingly on Amazon for delivery of home staples, and the company sees this trend continuing post-pandemic, particularly for groceries.

While brick-and-mortar stores closed, Amazon has now posted four consecutive record quarterly profits, attracted more than 200 million Prime loyalty subscribers, and recruited over 500,000 employees to keep up with surging demand.

Amazon said it expects operating income for the current quarter to be between $4.5 billion (roughly Rs. 33,380 crores) and $8 billion (roughly Rs. 59,350 crores), which includes about $1.5 billion (roughly Rs. 11,130 crores) in costs related to COVID-19.

Shares rose 4 percent in after-hours trade.

Throughout the pandemic, the world's largest online retailer has been at the centre of workplace tumult, with a failed attempt by organised labour to unionise an Amazon warehouse in Alabama and litigation in New York over whether it put profit ahead of employee safety.

Amazon's business has largely been unfazed by the developments. Michael Pachter, an analyst at Wedbush Securities, said a jump in Prime subscriptions, consumers' embrace of grocery delivery amid COVID-19 and an improving economy worked to Amazon's advantage.

"Habit. Good quality grocery. Stimulus checks," Pachter said. "They're going to thrive."

Slower sales growth in the current period relative to the last quarter reflected a tougher comparison to last year, when lockdowns were in full swing, Pachter said.

CEO Jeff Bezos touted the results of the company's cloud computing unit Amazon Web Services (AWS) in a press release, saying, "In just 15 years, AWS has become a $54 billion annual sales run rate business competing against the world's largest technology companies, and its growth is accelerating."

The plaudits were a nod to Andy Jassy, AWS's long-time cloud chief who will succeed Bezos as Amazon's CEO this summer. Amazon announced a deal for Dish Network to build its 5G network on AWS last week, and the division increased revenue 32 percent to $13.5 billion (roughly Rs. 1,00,150 crores), ahead of analysts' average estimate of $13.2 billion (roughly Rs. 97,920 crores), according to IBES data from Refinitiv.

Brian Olsavsky, Amazon's chief financial officer, said businesses increasingly wanted to outsource their technology infrastructure to AWS.

"We expect this trend to continue as we move into the post-pandemic recovery," he said.

Adding to Amazon's second-quarter revenue will be Prime Day, the company's annual marketing blitz. Amazon disclosed the event will take place in June rather than July, as is more typical, to reach customers before they head on vacation.

Grocery sales anchored by Amazon's subsidiary Whole Foods Market remain a bright spot, too. Olsavsky called grocery "a great revelation during the post-pandemic period."

The company's first-quarter profit more than tripled to $8.1 billion (roughly Rs. 600,90 crores) from a year ago, on sales of $108.5 billion (roughly Rs. 8,04,860 crores), ahead of analysts' estimates.

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Amazon saw its stock price nearly double in the first part of 2020 as it benefited from the pandemic. This year, however, it has underperformed the S&P 500 market index. Its shares were up about 8.5 percent year to date versus the index's 13 percent gain.

Spending on COVID-19 and logistics has chipped away at Amazon's bottom line. The company has poured money into buying cargo planes and securing new warehouses, aiming to place items closer to customers to speed up delivery. It said Wednesday it planned to hike pay for over half a million employees, costing more than $1 billion (roughly Rs. 7,410 crores) - and it is still hiring for tens of thousands more positions.

Olsavsky said Amazon was still working to restore one-day package delivery rates to pre-pandemic levels.

He told reporters the company intends to increase spending on video content this year as well. Consumers have been watching content for more hours on Amazon, Olsavsky said.

While far behind ad sales leaders Facebook and Alphabet's Google, Amazon is growing its advertisement business because brands' placements often result directly in sales, reaching customers who are on Amazon with an intention to shop.

Jesse Cohen, senior analyst at Investing.com, said, "Outside of its core retail and cloud units, advertising revenue is increasingly becoming another substantial growth driver for Amazon."

Amazon said ad and other sales rose 77 percent to $6.9 billion (roughly Rs. 51,175 crores), ahead of analysts' estimate of $6.2 billion (roughly Rs. 45,980 crores).

© Thomson Reuters 2021