Amazon smashed investor expectations for the third quarter of this year, with strong earnings per share and revenue.
The company saw its net sales increase 37% year over year to $96.1 billion and its operating income increase 96% year over year to $6.2 billion, compared with net income of $2.1bn in third quarter 2019.
Its cloud-services unit, Amazon Web Services, reported net sales of $11.6bn for the quarter, up 29% year over year.
The gains came despite a decision to spend $4bn on coronavirus-related measures, including procuring personal protective equipment, enhanced cleaning of its facilities and wage increases.
The company is also expecting a bumper holiday shopping period, as Amazon gave revenue guidance in the range of $112bn to $121.bn, above analyst expectations of $112.7bn.
Amazon CFO Brian Olsavsky said during an earnings call: “In total, we have incurred more than $7.5bn in incremental COVID-related costs in the first three quarters of 2020, and we expect to incur approximately $4bn in Q4.”
Olsavsky added that the company had added 250,000 jobs in the third quarter, and 100,000 in the first month of the fourth.
Earlier this week, Amazon said it would add 100,000 seasonal jobs to its current workforce of close to 900,000 people to assist with increased demand – jobs, the company stated, would offer either a “path to a longer-term career” or “extra income and flexibility during the holiday season”.
In statement, Amazon’s founder and chief executive, Jeff Bezos, whose personal fortune is now in excess of $200bn, drew attention to the company’s jobs growth and decision to boost the minimum wage for workers.
“Two years ago, we increased Amazon’s minimum wage to $15 for all full-time, part-time, temporary and seasonal employees across the US and challenged other large employers to do the same. Best Buy and Target have stepped up, and we hope other large employers will also make the jump to $15. Now would be a great time,” Bezos said.
Bezos added that “offering jobs with industry-leading pay and great healthcare, including to entry-level and frontline employees, is even more meaningful in a time like this, and we’re proud to have created over 400,000 jobs this year alone”.
The Amazon boss said the company was 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. Big thank you to our employees.”
Amazon’s results came as US stocks bounced back on Thursday a day after their biggest rout in four months, with the S&P 500 rising 1.2% as investors were encouraged by better-than-forecast economic data.
The company is also creating 10,000 new permanent jobs in the UK, bringing the total Amazon jobs in the country to 40,000.
Industry comment
Hugh Fletcher, Global Head of Consultancy and Innovation, Wunderman Thompson Commerce, said: “Amazon has adapted strongly to the challenges posed during the Covid-19 pandemic. Its existing infrastructure has meant it was able to cope with the spike in demand and continue to grow its business. Moreover, the cleverly timed Prime Day has allowed it to own the beginning of the peak discounting period, contributing to the creation of a 10-week “Mega Peak”. We’re predicting that 65% of Black Friday spend this year will be on Amazon as consumers get their Christmas shopping done early, with festive shopping likely be dominated by the platform as well.
“Significant investment to tackle negative publicity around the safety of its warehouses and a continued, concerted effort to be viewed as an ethical business, with the launch of an “eco-friendly” shopping platform is part of Amazon’s long-term strategy to consolidate its global customer base. It’s a reflection of changing shopping habits with 55% of consumers considering a company’s ethics and morals when making a purchase and 46% actively choosing companies that are more environmentally responsible.
“Amazon is well-equipped to deal with the uptick in demand over the next few months, but the ever-changing coronavirus restrictions will continue to pose a challenge. The potential of a second lockdown looms and the UK’s imminent exit from the EU is contributing to consumers’ purse strings tightening. It’s probable that Amazon will be best placed to ‘own’ Q4 – brands and retailers therefore need to ensure they have a balanced eCommerce approach that can combat this during the most important period in the retail calendar.”
Chris Mole, Founder and CEO of Molzi, an Amazon Agency, said: “With lockdowns easing and brick and mortar stores gradually reopening, Q3 has been a pivotal quarter for ecommerce. The key question for brands and investors has been whether the Covid-19-induced shift to online shopping which boosted demand and revenue in Q2 has continued now that alternatives are open to consumers again. But Amazon’s impressive YoY revenue for Q3 is a clear statement that shoppers have continued to rely on ecommerce despite easing restrictions. As with the Q1 and Q2, profits have taken a short-term hit due to Amazon’s investment in its Covid-19 response, but this should not alarm brands and investors: ecommerce demand is healthy and will only continue to grow into Q4. Research shows that 75 percent of Amazon shoppers are planning to make purchases on Black Friday, 69 percent on Cyber Monday, and 84 percent during the Christmas shopping rush in December. On average, Amazon shoppers are set to spend £400 each on the platform in the run-up to Christmas.
“Q4 is set to be huge for Amazon earnings due to its run of sales moments which this year included a delayed Prime Day. And with these moments coinciding with a second wave of Covid-19, brands should be prepared for a rush of consumers relying upon Amazon for Christmas purchases. Simply discounting products and hoping for sales is rarely enough. Deals should be paired with a carefully planned advertising strategy, retail ready listings and available stock to get the most out of the upcoming sales peak. Brands must also prepare for the end of the Brexit transition period, which will force Amazon sellers to split inventory between UK and EU fulfilment centres, and this may begin a turbulent period for Amazon profits whilst sellers get to terms with changes.
“In sum, Amazon’s Q3 earnings statement should encourage brands and investors as we head towards Amazon’s busiest period. Profit may be affected short-term as Amazon continues to invest in Covid-19 measures and services like AWS, which is swiftly becoming the company’s hero offering. But crucially, Amazon demand is not going anywhere, and current investment to improve Amazon services and attract even more brands and consumers will help to drive long-term success.”
Nick Fletcher, SVP Northern Europe, Rakuten Advertising, said: “These latest results come as little surprise following Amazon’s record Q2 earnings and the accelerated adoption of online shopping by consumers globally due to the pandemic. The recent buzz of Prime Day is positive news for retailers in the lead up to Black Friday and Cyber Monday. The results show that consumers are still spending, and we expect this to continue.
Retailers need to ensure that their promotional and marketing strategies are geared towards engaging reaching consumers with targeted and personalised messages that are optimised towards converting audiences over this peak shopping period. By serving marketing messages that are both relevant and timely, retailers can work to combat Amazon’s continued growth and dominance by driving consumers to their own e-commerce environment and creating brand loyalty. This will continue to be critical with Black Friday sales already kicking-off and Christmas around the corner.”
Aaron Goldman, Chief Marketing Officer at Mediaocean, said: “As Amazon revenue continues to soar, its advertising business is positioned well for further growth. Brands using the Mediaocean Scope closed ecosystems platform to manage their ad spend on Amazon increased budgets to the tune of triple digits in Q3 of this year. With eMarketer forecasting 30% growth for US ecommerce advertising spend in 2021 to $22.5 billion, it’s clear there is lots of runway ahead for Amazon advertising investment and innovation.”
Paul Kirkland, Retail and Hospitality Business Development Director, Fujitsu, said: “There’s no way to sugarcoat it – Amazon masterfully cornered the retail market during lockdown. The eCommerce giant became a lifeline for those shielding, and an even more attractive buying resource for those not, as the world stayed indoors and shopped online in response to the global pandemic. While it’s been racing ahead of its competitors for some time, the expansion of its one-day delivery service across global markets solidified its position as the go-to destination for online (and socially distancing) shoppers over the summer.
“And Amazon’s successes haven’t stopped it growing and innovating. Not content with becoming the world’s largest eCommerce platform, Amazon has turned its attention to the high street – establishing its cashless, physical Amazon Go stores, and acquiring Whole Foods, to attract consumers who prefer the bricks-and-mortar retail destinations. It’s eye-watering results today should come as no surprise to the sector and other retailers should emulate Amazon’s omnichannel, customer-centric offering – as consumers continue to move online – if they hope to drive footfall and sales over Christmas and in the New Year.”