Amazon.com Inc. reported soaring quarterly sales as homebound customers flooded it with online shopping orders, capping a string of earnings reports from big tech companies that show how the coronavirus pandemic has fueled demand for their products and services.
The Seattle-based tech giant said Thursday that revenue rose 26% from a year earlier to $75.5 billion in the three months through March—by far the highest on record for what is usually Amazon’s slowest period of the year. The boom in sales came at a cost, though, as profit fell 29% from a year earlier to $2.5 billion, well short of analysts’ average estimate of $3.26 billion, according to a survey by FactSet. Operating profit for the quarter also missed the estimate Amazon gave in January.
The results reflect the central role Amazon has played during the coronavirus crisis, delivering goods to people stranded at home by government shelter-in-place orders. The surge in online buying taxed Amazon’s fulfillment centers, which saw unprecedented volumes for this part of the year. In response, Amazon temporarily stopped taking inventory for products deemed nonessential and hired 175,000 more staffers for its warehouses and delivery network. Amazon said it ended the quarter with 840,000 employees.
Worldwide shipping costs were $10.9 billion in the first quarter, a 49% increase from the year-earlier period. As the pandemic continues, the company will have to figure out how to get much-needed items to customers more profitably.
“The current crisis is demonstrating the adaptability and durability of Amazon’s business as never before, but it’s also the hardest time we’ve ever faced,” Amazon Chief Executive Jeff Bezos said in a statement.
Amazon shares fell 5.2% in after-hours trading Thursday following its financial report.
Microsoft Corp., the world’s most valuable publicly traded company, on Wednesday reported strong growth in quarterly sales and profit, with gains in areas from business software to videogame consoles.
Facebook Inc. and Google parent Alphabet Inc. also both reported higher profits and increased use of their services, though both saw weakening in their online advertising revenue as the pandemic spread.
The tech giants’ fortunes stand in contrast to many companies across the U.S. economy, which shrank in the first quarter at its fastest pace since the last recession. Investors had sent the Seattle company’s stock price up nearly 34% this year through Thursday’s close, while the Dow Jones Industrial Average fell nearly 15% and the Nasdaq Composite Index was down about 1%.
The pandemic has broadly been a boon for sales at retailers with strong e-commerce abilities but devastated those that rely on bricks-and-mortar operations. Department-store chain J.C. Penney Co. Inc. is negotiating for bankruptcy funding, the Journal reported last week, and Macy’s Inc. at the end of March said it was furloughing most of its roughly 125,000 employees—though Macy’s said Thursday it plans to reopen some of its department stores next week in states that have loosened restrictions.
Amazon is “willing to get through this Covid crisis by adding just about more employees than anyone else,” RBC Capital Markets analyst Mark Mahaney said. “It says something about the human cost that Amazon is bearing and the magnitude they are willing to spend in the second quarter.”
Still, the pandemic continues to strain tech operations, and Amazon said it expects to spend around $4 billion on coronavirus-related costs like employee testing and increased wages. It spent more than $600 million on such costs in the first quarter.
Amazon also spent heavily in the quarter hiring more employees and temporarily raising the pay of essential workers by $2 an hour. Amazon said that additional pay for hourly employees through May 16 will cost $700 million.
The deluge of orders at a time when Amazon has tried to get enough products to fulfill demand has constrained its Prime one-day delivery promise, Chief Financial Officer Brian Olsavsky said on a call with reporters Thursday. Prime orders, which typically are delivered in as little as a day, have sometimes showed monthlong delivery windows during the crisis. Bottlenecks picking and packing boxes for customers are causing delays in shipping those items, he said.
Amazon said it expects second-quarter sales of between $75 billion and $81 billion. Reflecting the uncertainty of the current environment, it projected its operating income to fall to between a $1.5 billion loss and a $1.5 billion gain, compared with operating income of $3.1 billion a year earlier.
Amazon’s advertising business also has held up well, with sales in the latest quarter rising 43.8% from a year earlier to $3.9 billion. The unit, which sells ad space in the form of sponsored products in search and display ads, has become another cash cow for the company in recent years.
Amazon still faces other challenges beyond stabilizing warehouse and logistics operations. It is fighting several battles with the Trump administration, which on Wednesday added several of the company’s overseas websites to a list of “notorious markets” believed to facilitate intellectual-property violations. Amazon called the move politically motivated.
And lawmakers from both parties have called for more scrutiny of Amazon after a Journal report detailed the company’s use of third-party seller data to develop its products, a practice at odds with the company’s stated policies. Amazon has said it launched its own investigation.
Amazon’s international business posted a wider operating loss for the latest quarter. The physical stores segment, which includes Whole Foods, had $4.6 billion in sales for the period, up 7.7% from a year ago.
Profit declined 42.6% in its North American unit, which includes the bulk of its e-commerce operations.
—Sebastian Herrera contributed to this article.
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