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Amazon sales surge amidst online boom

 

  • Amazon’s sales for the Jun 20 quarter jumped by whopping 40%
  • Proving to be one of the biggest beneficiaries of the COVID-19 pandemic

 

The global leader in online retail – Amazon has reported blowout second quarter earnings, including a huge beat on the top line with double-digit revenue growth year-over-year, helped by surging sales volumes amidst the coronavirus pandemic. The online retailer was inundated with orders due to the COVID-19 outbreak which pushed closure of all non-essential retail stores, wherein even Amazon temporarily halted its third-party shipping program so as to prioritize shipments of personal protective equipment, masks and other sanitary products.

Amazon announced earnings per share of US$ 10.30 on revenue of U$ 88.9 billion, swamping the average analyst estimate's target for per-share earnings of US$ 1.46 on revenue of US$ 81.56 billion.  Also, company’s net profit doubled from comparable prior year to a record high US$ 5.2 billion. Amazon’s stock rose by as much as 6% in after-hours trade to US$ 3,204 per share, boosting the company’s market cap to nearly US$ 1.6 trillion.

 

The company’s sales increased by 40% in Q2 2020 and 34% for the half year ended June 30, 2020 compared to the comparable prior year periods. The upsurge in sales primarily reflects strong demand for online retail and revenue generation from cloud services. Increased unit sales were driven to a great extent by reduced prices, shipping offers, and increased demand, including for household staples and other essential and home products, partly offset by the moderated orders of certain products and fulfilment network capacity and supply chain restrictions.

 

 

The online stores segment held the biggest share with nearly 52% of the total revenue of the company, whereas Third-party services segment jumped by massive 52% during the current quarter year-over-year, outpacing growth in Amazon’s first party(online) sales, which increased by 48%. Amazon’s cloud-computing unit, Amazon Web Services(AWS), reported revenues of US$ 10.81 billion for the quarter, but its growth rate plunged below 30% for the first time, to 29%, year over year mainly due to competitive price offerings to the customers. Cloud services like Amazon’s have now become vital to organizations during the pandemic as many of their employees have shifted to work remotely. However, with companies looking to cut costs as a result of the broader economic dip, Amazon, Google and Microsoft have all seen cloud revenue growth, slow down compared to the same period last year. Subscription services, which includes revenue from Amazon Prime memberships as well as digital video & music were also up 29% year-over-year to US$ 6.02 billion. Amazon’s ‘Other’ revenue category, which is comprised mainly of its advertising services, generated US$ 4.22 billion in revenue, up 41% year over year.

The higher growth in profit reported by the company was mainly due to the increased sales of more profitable products and shipments. The products sold on the company’s website grew 57% for the quarter, while online sales jumped 49%, with growth rate for both more than tripling as compared to last year. Amazon’s CFO, Brian Olsavsky has highlighted that Amazon's high-margin businesses, like its cloud computing and advertising segments would continue to flourish even after the pandemic eases out.

In the current quarter, Amazon’s anticipated revenue generation is seen ranging between US$ 87 billion to US$ 93 billion representing year-over-year growth between 24% and 33%, while operating income is expected to be around US$ 2 billion and US$ 5 billion, which factors in additional coronavirus-related investments. Earlier this week, the number of its employees also hit one million by staffing more than 175,000 new employees in March and April, with many of them getting displaced from other jobs in the economy. Amazon plans to spend another US$ 2 billion on COVID-related initiatives this quarter, in addition to US$ 4 billion which it spent last quarter in pandemic-related expenses, including a onetime thank you bonus of around US$ 500 million to its front line workers in various segments.

Amazon, like many other retailers, was taken aback by an influx of online orders during the pandemic, which led to logistics bottlenecks and supply chain shortages. The company’s one and two-day delivery services were hindered with delays, marking a rare disruption in its normally speedy shipping operations. Amazon's grocery delivery and pickup services saw a surged demand due to COVID-19, and the company's recent infrastructure investments helped in to broaden the reach of those offerings. Grocery delivery capacity expanded by more than 160% in the quarter, and the company tripled its total grocery pickup locations. The retail giant did not break down the revenue specific to its online grocery business but noted that quarterly year-over-year sales tripled.

The latest financial release unveils how Amazon is proving to be one of the biggest beneficiaries of the COVID-19 pandemic, as more and more people shop online, and businesses increase their cloud computing usage. Early in the shutdown, when global supply chains froze and Prime delivery times slowed, it was not clear whether it would make a profit out of the pandemic. Yet recent results show Amazon has not only become a more powerful competitor during the pandemic but has easily absorbed the costs to get it there.

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