Keeping Amazon workers healthy and products moving could cost an additional $4bn or more in the next quarter, the company warned, wiping out any gain from a jump in sales as the coronavirus pandemic puts stresses on its vast network.
The ecommerce company reported record first-quarter net sales of $75.5bn, better than Wall Street had expected, even while its operating expenses swelled to $71.5bn, up from $55.3bn a year ago. Net income for the quarter was down 30 per cent compared to last year.
Looking ahead to its second quarter, Amazon said it expected to record revenues of between $75bn and $80bn, in line with analyst expectations of $78.9bn. But citing severe coronavirus-related strain, the company said operating income could swing between a loss of $1.5bn or a gain of the same amount.
“Under normal circumstances, in this coming Q2, we’d expect to make some $4bn or more in operating profit,” said Jeff Bezos, Amazon’s chief executive.
“But these aren’t normal circumstances,” he added. “Instead, we expect to spend the entirety of that $4bn, and perhaps a bit more, on Covid-related expenses getting products to customers and keeping employees safe.”
Amazon stock ended Thursday’s trading at an all-time high, up more than 30 per cent on the start of the year, when it was already on a tear thanks to a strong holiday season. After the earnings release, its shares fell about 5 per cent in after-hours trading.
After an initial dip in March, investors had begun to see Amazon as the company that stood to benefit the most as consumers around the world locked down, changing buying habits that may endure beyond the crisis.
But that demand has come at a high cost, as Amazon was forced to adapt its processes, implement social distancing in its facilities, hire new staff and prioritise what consumers most urgently needed: household essentials and medical goods.
Amazon said it spent $600m on Covid 19-related costs in the first three months of this year. That is expected to skyrocket to $4bn in the second quarter.
“The rest of the year is to be determined,” said Brian Olsavsky, chief financial officer, in a call with reporters. “We’re only six weeks into this.”
More than $750m has so far been spent on staffing, as the company embarked on an enormous hiring spree of 175,000 new employees, while putting in place a $2-an-hour pay rise across the board. Another $800m has been spent on safety supplies and measures, such as the distribution of masks and thermal cameras.
Amazon has now taken on more workers so far in 2020 than it did in the whole of 2019, a year which had already been considered one of rapid growth as the company invested in its delivery infrastructure.
To protect them, Amazon said it anticipates spending $1bn on its effort to create an in-house coronavirus testing capability, a measure Mr Bezos had said previously was necessary to restart the economy.
Away from online retail, Mr Olsavsky said the company had an 8 per cent rise in revenues from in-person shoppers at Whole Foods. There are now 150 stores offering pick-up points for online deliveries, compared with 80 in the previous quarter.
However, despite a dramatic pivot to remote working, sales from Amazon Web Services — the company’s cloud computing service, and biggest profit driver — grew at the slowest rate for the segment in more than a year, up 33 per cent year-on-year to $10.2bn.
Amazon said this reflected the diversity of its clientele. “Things like video conference, gaming, entertainment are all seeing much higher growth,” said Mr Olsavsky. “But things like hospitality and travel have contracted severely.” Rival Microsoft on Wednesday reported that revenue for its cloud business Azure had risen 59 per cent.
If Amazon’s current worst-case scenario comes to pass — a $1.5bn operating loss in Q2 — it would be the company’s first unprofitable quarter since 2014.
“You can’t bring 175,000 new people on, give them a pay rise, give them a mask . . . and get scale,” said Jefferies analyst Brent Thill. “There’s no magic pixie dust to make that happen.”
Still, he said it was “unlikely” that Amazon would drop into the red, noting the company’s reputation for issuing conservative guidance.