Amazon gains strength as coronavirus boosts shopping, cloud services

Tech giant records soaring revenue and sees billions in new costs as shoppers move online

Amazon.com Inc. said sales and profits soared in the second quarter as shoppers inundated the company’s site with orders and employees working from home around the world powered growth in its cloud-computing unit.

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Revenue grew 40% to $88.9 billion for the quarter ending June 30, propelled by a flood of customers who have relied on online shopping more than ever during the pandemic. Analysts polled by FactSet had expected sales of $81.4 billion. Profits doubled to a record $5.2 billion, far exceeding analyst expectations.

TickerSecurityLastChangeChange %
AMZNAMAZON.COM INC.3,167.46-57.54-1.78%

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The extent of the company’s success came as a surprise even for investors who had expected Amazon to do well. The Seattle tech giant struggled in March and April as the economic shutdown took hold across the country, spending more than $4 billion on coronavirus-related costs. Amazon hired hundreds of thousands of workers, boosted pay and took dozens of steps to ensure warehouse safety after facing early criticism from some employees.

Amazon’s workforce now exceeds 1 million people and it is the second-largest employer in the U.S. after Walmart Inc. The company has emerged as one of a handful of corporations that have seen sales increase during the pandemic, which has ravaged U.S. markets. Like Walmart and Home Depot Inc., customers have flocked to Amazon for essential goods even as the company struggled to keep up with demand in the early days of the public-health crisis.

The e-commerce pioneer has seen its shares surge by more than 60% this year, more than double the increase for other tech giants such as Apple Inc. and triple that of retailers that have largely kept stores open such as Home Depot, according to FactSet.

“We don’t know when we will recover out of this Covid crisis, but one thing that is certain is that these [shopping] trends are taking hold, and that’s why more and more people are hiding in Amazon,” said Hari Srinivasan, a portfolio manager at Neuberger Berman Group LLC, which owns roughly $1.8 billion worth of Amazon shares.

Amazon’s shares rose about 4.6% in after-hours trading on Thursday to about $3,200. The company’s overall costs jumped by 37.7% to $83 billion. Its world-wide shipping costs grew to $13.7 billion, a 68% year-over-year increase.

Jeff Bezos (Associated Press)

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“If you’re a shareowner in Amazon, you may want to take a seat,” Chief Executive Jeff Bezos said in April as Amazon warned that it could lose money in the second quarter as a result of coronavirus-related costs like increased wages. He said those costs exceeded $4 billion for the quarter. Amazon plans to keep most of the 175,000 workers it hired in recent months. For a period of about 10 weeks, it was paying workers an extra $2 an hour.

In addition to an increase in labor costs, Amazon has also added safety measures at its hundred of facilities, installing physical barriers between workers and purchasing 1,000 thermal cameras and millions of masks. The company is also seeking to build out its own coronavirus-testing capabilities.

Amazon said it expects third-quarter sales between $87 billion and $93 billion. It projected its operating income to be between $2 billion and $5 billion, compared with operating income of $3.2 billion a year earlier. The Prime Day shopping extravaganza, which typically occurs during the third quarter and gives Amazon a boost during the lull of the summer shopping season, has been moved to the fall.

In a press call Thursday, Chief Financial Officer Brian Olsavsky said that Amazon’s profit was helped by sales of more profitable items on its website and that the company was able to ship a greater number of products than it had anticipated. He said the company expects to spend roughly $2 billion in coronavirus-related costs during the third quarter.

Amazon’s earnings came a day after Mr. Bezos made his first appearance before Congress as part of a federal inquiry into the market power of the nation’s largest technology companies.

Amazon headquarters in Seattle (iStock)

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Mr. Bezos faced questions about Amazon’s impact on small businesses selling on its site, including revelations in a Wall Street Journal article that Amazon uses data from sellers to form its private-label products.

Mr. Bezos, who was also asked about counterfeit items on Amazon and how it has undercut smaller rivals by using its pricing powers, broadly defended Amazon’s business practices and highlighted its relatively small size in the overall retail sector. The CEO also said the company continues to investigate the allegations made in the Journal article.

Despite the troubles in Washington and the effect of the virus on Amazon’s business, investors who see the pandemic as a short-term problem have remained more confident than ever in the company’s long-term prospects. The company’s market value now exceeds $1.5 trillion and is in a range that could soon topple Apple as the world’s most valuable company.

Amazon fulfillment center (Associated Press)

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Amazon’s earnings were among a wave of strong results from big-tech companies, especially those whose businesses have been lifted by the swell in stay-at-home workers. Facebook Inc. said profits nearly doubled to $5.1 billion in the quarter. Samsung Electronics Co. said quarterly profits rose about 7%. Last week, Microsoft Corp. reported strong sales growth propelled by sustained demand in its cloud-computing business.

Amazon’s business units outside of e-commerce have continued to drive profits. Sales at Amazon’s web-services division grew 29% to $10.8 billion, helped by millions working from home. Zoom Video Communications Inc. hosts a significant portion of its network on Amazon’s cloud service, called Amazon Web Services.

Sales surged 41%, to $4.2 billion, at the business unit that includes its advertising operations. Amazon’s advertising unit has grown rapidly and is one of the top digital-advertising companies in the world, selling ad space in the form of sponsored products in search and display.

Operating income surged 37% in its North America unit, where most of its e-commerce operations are focused. Amazon’s international business swung to a gain of $345 million. Sales fell 13% in its physical-store unit, which includes Whole Foods Market.

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