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Amazon forecasts jump in holiday sales - and COVID-19 costs

Amazon forecasts jump in holiday sales - and COVID-19 costs

The logo of Amazon is seen at the company logistics centre in Boves, France, on Nov 5, 2019. (Photo: REUTERS/Pascal Rossignol)

NEW YORK: on Thursday (Oct 29) forecast a jump in holiday sales - and costs related to COVID-19 - as consumers continued to shop more online during the pandemic.

Shares initially rose 2 per cent before paring gains and remaining 1 per cent lower in after-hours trading.

Since the start of the virus outbreak in the United States eight months ago, consumers have turned increasingly to Amazon for delivery of groceries, home goods and medical supplies. 

Brick-and-mortar shops closed their doors; Amazon by contrast moved to recruit over 400,000 workers and earned US$6.3 billion in the just-ended quarter, its second consecutive record profit.

That has kept the world's largest online retailer at the centre of workplace and political tumult. Democratic politicians this month accused Amazon of holding "monopoly power" over merchants on its platform, which the company disputes. 

Meanwhile, more than 19,000 of Amazon's US employees contracted COVID-19, and some staff protested for site closures.

Amazon's response now includes an estimated US$4 billion in costs related to COVID-19 this holiday, up from US$2.5 billion last quarter. It is testing employees for the virus and getting protective gear for new hires. 

It also is working less productively because of social distancing at its warehouses, which accounts for a big part of its pandemic expense, Chief Financial Officer Brian Olsavsky said on a call with reporters.

Amazon forecast operating profit to be between US$1.0 billion and US$4.5 billion, short of US$5.8 billion analysts were looking for, according to research firm FactSet.

Competition this holiday remains fierce for the company in retail - and in the cloud. A traditional bright spot, cloud computing division Amazon Web Services (AWS) is duelling with smaller rival Microsoft Corp for business with a big potential during the pandemic, from remote work to cloud-based gaming.

In the just-ended third quarter, AWS sales grew 29 per cent, while Microsoft reported a 48 per cent rise in revenue for its Azure cloud.


Still, Amazon's sales are shaping up to hit a record level. Jeff Bezos, Amazon's chief executive and richest person in the world, said in a press release, "We’re seeing more customers than ever shopping early for their holiday gifts, which is just one of the signs that this is going to be an unprecedented holiday season."

The question for some analysts has been whether Amazon's consumer division can keep up with still-growing purchases during the pandemic.

The company has long worked to avoid a repeat of the 2013 season when delays left some without presents on Christmas Day. Amazon now handles more deliveries in house, and this year it moved its marketing event Prime Day - usually in July - to October, letting customers place holiday orders early.

CFO Olsavsky told reporters that the company is "not totally insulated" from challenges its delivery partners may be facing this quarter, though the online retailer feels ready for the holiday season.

"We do think it will be tight on capacity industry-wide, and we’re no exception to that," he said. "It does behoove shoppers to shop early."

Amazon said it expects net sales of US$112 billion to US$121 billion for the fourth quarter. That would mark the company's first over $100 billion and follows a third-quarter revenue beat that analysts such as eMarketer's Andrew Lipsman did not expect.

"While it was clear that the pandemic-driven shift to ecommerce would keep Amazon's topline elevated, it surprised by easily surpassing an already high bar," Lipsman said.

Source: Reuters


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