Amazon’s Net Sales Grew 26% to $75.5 Billion in the First Quarter

No one should have been surprised by Amazon’s first quarter sales results, released yesterday. For the quarter, Amazon’s net sales increased 26% to $75.5 billion, compared to $59.7 billion in the first quarter of 2019.  Operating income decreased to $4.0 billion, compared to $4.4 billion in Q1 2019. Net income also decreased, dropping to $2.5 billion, or $5.01 per diluted share, compared to $3.6 billion, or $7.09 per diluted share for the first quarter last year.

“…The current crisis is demonstrating the adaptability and durability of Amazon’s business as never before, but it’s also the hardest time we’ve ever faced,” said Jeff Bezos, Amazon founder and CEO. “We are inspired by all the essential workers we see doing their jobs — nurses and doctors, grocery store cashiers, police officers, and our own extraordinary frontline employees. The service we provide has never been more critical, and the people doing the frontline work — our employees and all the contractors throughout our supply chain — are counting on us to keep them safe as they do that work. We’re not going to let them down. Providing for customers and protecting employees as this crisis continues for more months is going to take skill, humility, invention, and money.”

Bezos further explained that in the second quarter they would normally make about $4 billion in operating profit. However, the company expects to spend that money on COVID-related expenses in delivery products to customers and in keeping its own employees safe. This includes purchase personal protective equipment, cleaning of Amazon facilities, less efficient processes for safer social distancing, higher wages for hourly workers, and hundreds of millions to develop their own COVID-19 testing.

“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,” Bezos added.

Amazon has implemented a number of measures in its Whole Food Stores and Amazon fulfillment centers to make things safer for its employees, though some employees have stated publicly it is not enough and have staged walkouts. Here are some of the things Amazon is doing for its Prime members and other customers:

• The company continues to prioritize stocking and delivery of essential items, such as household staples, medical supplies and other critical products.
• Amazon has removed more than 1 million offers from its ecommerce site due to price gouging, and suspended more than 10,000 sellers.
• The company Is trying to increase order capacity for Prime Now, Amazon Fresh and Whole Foods.
• Grocery pickup from Whole Foods has expanded from 80 stores to more than 150.
• Whole Foods has special hours designated for seniors to shop and for other customers to pick up groceries.
• Alexa has been programmed to answer tens of thousands of COVID-19 related questions.

For the communities it serves:

• Through its Amazon Flex driver network, the company is partnering with food banks to donate delivery services to serve 6 million meals through the end of June.
• Amazon donated $10 million in funding to provide financial relief to more than 800 small businesses in the Seattle and Puget Sound area through cash grants and free rent through their Neighborhood Small Business Relief Fund.
• They have donated 12,200 laptops to students and are providing online computer science resources, including exam preparation, available for free to students, parents and teachers.
• Amazon will provide more than €21 in relief organizations across Europe.

Amazon also shared some business highlights in its first quarter report:

• Prime Video launched Prime Video Cinema in the U.S., the U.K. and Germany, so members can rent premium movies including new releases like Trolls World Tour, Birds of Prey, The Invisible Man and Onward.
• Prime Video released new Amazon Originals including Making the Cut, The Forgotten Army (India), Love Island (France), Celebrity Hunted (Italy) and The Test: A New Era for Australia’s Team.
• Prime Video and the NFL announced a multi-year agreement to live stream 11 Thursday Night Football games, available to Prime members.
• Amazon launched Blink Mini, a new compact indoor smart security camera that works with Alexa. It is available in the U.S., the U.K., Canada, Germany and France.
• Amazon donated $10 million to The Nature Conservancy as part of its Right Now Climate Fund.

Though it is unclear how the coronavirus crisis will impact the economy or Amazon, the company provided the following guidance for the second quarter:

• Net sales will range between $75.0 billion and $81.0 billion for growth of 18% to 28%.
• Operating loss/income will range between $(1.5) billion and $1.5 billion, compared to operating income of $3.1 billion. This estimate presumes that Amazon will have $4.0 billion in COVID-19 related expenses in the second quarter.

Following the earnings report, Amazon stock rose from $2,372.71 to $2,474.00 between April 29 and 30, an increase of $101.29.

Insider Take:

Similar to Netflix, the focus on financials in the first quarter report was minimal. The real focus was on the impact COVID-19 has had on the world and the company. In this case, Amazon also noted the many things it is doing to take care of its employees, likely to try to counteract the negative publicity Amazon has received from employees during the pandemic. Amazon’s generosity in terms of the global community is hard to dispute, and they’ve also been generous with small businesses in the region they call home. They are taking extra measures to get consumers their purchases and to do so safely. Amazon has profited from COVID-19, but based on this report, it sounds like the company is reinvesting it at a loss.