Amazon’s second-quarter earnings made one thing perfectly clear: If there was a king of retail for the coronavirus era, it would be chief executive officer Jeff Bezos.
On Thursday, the e-commerce giant reported earnings that obliterated the estimates: The market expected $1.50 per share on revenue of $81.24 billion, but the e-commerce company pulled in a whopping $10.30 per share on revenue of $88.9 billion, with net income of $5.2 billion. Shares jumped 5 percent on the news and continued climbing during after-hours trading.
Pretty much every Amazon watcher predicted that the online marketplace would benefit from brick-and-mortar’s pandemic woes, which included mass retail closures — and re-closures, in light of the resurgent infection rates — along with widespread work-from-home mandates hitting most sectors.
This level of performance, however, was a shock. Perhaps even to Bezos himself.
“This was another highly unusual quarter, and I couldn’t be more proud of and grateful to our employees around the globe,” the ceo said in a press statement that outlined some of the same points he addressed in his Wednesday appearance before the House Judiciary committee.
The company spent more than $4 billion on COVID-19-related expenses, including employee safety measures such as personal protective equipment, cleaning and development of new procedures. Amazon also added new benefits for families and thank you bonuses to front-line workers totaling more than $500 million, in addition to creating more than 175,000 jobs. So far, the company has been on-boarding 125,000 of them.
“And third-party sales grew faster this quarter than Amazon’s first-party sales,” he noted. “Lastly, even in this unpredictable time, we injected significant money into the economy this quarter, investing over $9 billion in capital projects, including fulfillment, transportation and AWS [Amazon Web Services].”
Those investments will continue to pay off, at least through the end of the year, according to George Chang, executive marketplace analyst at VTEX, a collaborative commerce provider and marketplace growth platform.
“Since the coronavirus pandemic ensued, Amazon’s efficient last-mile delivery model and two-day shipping promise has become a beacon for customer acquisition that will likely continue into the end of the year and beyond,” he said. This “head start will fuel Amazon’s lead in [the second half of] 2020, as competition from Shopify and Walmart begin to acquire some of the Amazon pie — with their respective marketplace curation approaches.”
On the earnings call, chief financial officer Brian Olsavsky put the movement in context: “We’re balancing what is going to be very stepped-up demand and capacity in Q3 and Q4,” he said. “So, if you look at our historic run rates and see how big a quarter Q2 was, Q2 was actually higher revenue than Q4 of last year, which is unheard of. And Q3 is now forecast to be also higher than Q4 of last year. So we’ve kind of moved the peak forward for different reasons.”
Some of that has to do with addressing employee safety and figuring out how to balance its cost structure, in light of the extra expenses and demands earlier on. That’s improved now, according to the Amazon exec, setting up the company for the next two quarters. That’s important because Amazon moved its Prime Day to the fourth quarter, which means the company’s biggest revenue generator is still ahead of it.
In other parts of the business, Amazon’s streaming business continues to grow while Amazon Web Services dipped in the second quarter. The cloud division’s $10.81 billion in revenue slid in under the $11.02 billion estimated, which means AWS now accounts for slightly less of the company’s total business, representing 12 percent of total revenue compared to 13 percent in the year-ago quarter.
Subscription services, including Prime memberships, were up 29 percent and pulled in $6.02 billion. Today, the company serves as many as 150 million paid subscribers.
Notably Amazon’s “other” category, which covers advertising, raked in $4.22 billion in revenue for a gain of 41 percent.
“Two landlords, Google and Facebook, control 60 percent of worldwide digital-ad real estate,” said Garin Hobbs, director of deal strategy at Iterable. “So rented ad-space, where more experimentation and less control of results, like with Twitter, will be less appealing than tried-and-true web sites [like Amazon].”
Amazon’s overall momentum will likely send it sailing through the second half of the year. But Chang’s more cautious about where it goes from there. “It remains to be seen if Amazon’s customer experience will result in sustained loyalty from customers and sellers into 2021,” he said.