Amazon today reported earnings for its first fiscal quarter of 2020, including revenue of $75.5 billion, net income of $2.5 billion, and earnings per share of $5.01 (compared to revenue of $59.7 billion, net income of $3.6 billion, and earnings per share of $7.09 in Q1 2019). North American sales were up 29% to $46.1 billion, while international sales grew 18% to $19.1 billion. Amazon’s leadership position in online retail and the cloud makes it a bellwether during the coronavirus pandemic. In short, sales are up but profit is down.
Analysts had expected Amazon to earn $73.61 billion in revenue and report earnings per share of $6.25. The retail giant beat on revenue but missed on earnings per share. The company’s stock was up 4% in regular trading, and down 5% in after-hours trading. Amazon gave second quarter revenue guidance in the range of $75.0 billion and $81.0 billion, compared to a consensus of $78 billion from analysts. The sticking point was this line in the release: “This guidance assumes approximately $4.0 billion of costs related to COVID-19.”
Amazon CEO Jeff Bezos provided a longer-than-usual given the company’s role during the pandemic and the coronavirus’ impact on its business. He name-checked AWS, Prime Video, and Fire TV, said essential workers were an inspiration, and noted the company’s business has “never been more critical.” Then he addressed investors directly about that $4 billion figure:
If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small. Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe. This includes investments in personal protective equipment, enhanced cleaning of our facilities, less efficient process paths that better allow for effective social distancing, higher wages for hourly teams, and hundreds of millions to develop our own COVID-19 testing capabilities. 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.
In short, Amazon is going to spend money, not save money, in response to the pandemic. Investors don’t like to hear that, hence the stock is taking a beating.
Amazon also shared it has procured 100 million face masks and is “requiring that they be worn by all associates, drivers, and support staff.” The company also purchased more than 1,000 thermal cameras and 31,000 thermometers. Those will be used “to conduct mandatory daily temperature checks for employees and support staff throughout our operations sites and Whole Foods Market stores.”
AWS is now a $10 billion business
Amazon Web Services (AWS) growth continues to slow down, but it’s passed the $10 billion milestone. In Q2 2019, AWS growth fell to 37% — the first sub-40% growth rate since Amazon started breaking out AWS numbers. Then growth slipped to 35% in Q3 2019, 34% in Q4 2019, and now 33% in Q1 2020. It would appear that COVID-19 has done little to change the trend — next quarter we’ll now for sure.
$AMZN AWS revenue growth
– Q1 2017: 43%
– Q2 2017: 42%
– Q3 2017: 42%
– Q4 2017: 45%
– Q1 2018: 49%
– Q2 2018: 49%
– Q3 2018: 48%
– Q4 2018: 45%
– Q1 2019: 41%
– Q2 2019: 37%
– Q3 2019: 35%
– Q4 2019: 34%
– Q1 2020: 33%https://t.co/h1uSmr9KMv
— Emil Protalinski (@EPro) April 30, 2020
AWS is the cloud computing market leader, ahead of Microsoft Azure and Google Cloud. High-percentage growth cannot continue unabated. And for a market leader, growth of 33% in sales to $10.2 billion is nothing to scoff at. AWS accounted for about 13.5% of Amazon’s total revenue for the quarter, which is on the higher end.
Subscriptions and “Other” (ads)
Subscription services were up 28% to $5.56 billion. This segment mainly constitutes Amazon Prime, which the company has expanded to offer deals at places like Whole Foods. Amazon didn’t want to talk much about Prime today, aside for Prime Video. That arm launched a premium movie rental offering, Prime Video Cinema, in the U.S., the U.K., and Germany for streaming in-theater movies at home.
Amazon’s “other” category, which mostly covers the company’s advertising business, was up 44% to $3.91 billion in revenue. The company knows plenty about what its customers want to buy, or even don’t want to buy, and it’s increasingly leveraging that for its advertising business.
As always, Alexa was mentioned many times (12, to be exact) in the company’s press release, even though Amazon won’t break out the voice assistant in its earnings reports. The company noted that Alexa “can now answer tens of thousands of questions related to COVID-19.”