Amazon says it will spend $4 billion on coronavirus fixes
Amazon sales surged with the coronavirus quarantine, pushing more shoppers into e-commerce last quarter, but the company is spending more money to keep its operations running during the pandemic.
On Thursday, Amazon reported its first-quarter earnings showing sales reached $75.5 billion, a 26 percent year-over-year increase. Meanwhile, with expenses up, its profits of $2.5 billion were lower than they were a year ago at the same time. In the first quarter 2019, profits were $3.6 billion.
Amazon has been tested perhaps like no other company since the coronavirus shut down the global economy. The e-commerce site has become the go-to source of supplies for people at home, meanwhile its workers are on the frontlines delivering goods in hazardous conditions. Amazon employees have challenged CEO Jeff Bezos to raise the standards of working conditions in warehouses.
Amazon says it will spend $4 billion in the current quarter to raise safety standards and keep delivering to homes. "If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small," Amazon said in its earnings release.
"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."
After releasing earnings, Amazon executives discussed the difficulties of running the business in the middle of the pandemic. Brian Olsavsky, Amazon chief financial officer, was asked by Wall Street analysts during the earnings call what the company has learned, so far. "We've learned that it's easier to get ready for a holiday or for a Prime Day than it is to get ready for something like this when everything hits all at once," Olsavsky said.
Amazon has dealt with a number of strains on its business like delays in getting goods to its distributions centers and out to consumers. The company had to freeze shipping of nonessential products in March, for instance, so it could focus on delivering items like food and medical gear.
Executives said the company has seen a number of changes in consumer behavior, especially with customers flocking to areas like groceries. "We have seen an increase in demand in online grocery shopping," said Dave Fildes, Amazon director of investor relations.
"We're seeing a lot of pickup in Prime shopping benefits," Fildes said. "We see our Prime customers are shopping more often, and they have larger basket sizes."
Amazon said it bought 100 million masks to outfit employees, and it invested in thermal cameras and thermometers to monitor potential symptoms of COVID-19 among workers. Amazon is building a testing regimen, too, to detect outbreaks at its workplaces.
Amazon's safety measures cover workers at its grocery store chain Whole Foods, too. On Thursday, Amazon said it is now requesting that all shoppers at Whole Foods wear face masks, adding that it would make masks available to customers that need them.
Adding to the expenses, Amazon has said it is hiring 175,000 new workers to keep the boxes moving from warehouses to homes.
Amazon's share price was down nearly 5 percent in after-hours trading, partly because analysts expected higher profits.
Amazon also shared revenue around its advertising business, which continues to grow. Amazon reports advertising in the "other" category on its balance sheet. Ad revenue hit $3.9 billion, an increase of 44 percent compared to last year.
The cloud business, known as Amazon Web Services, also rose with revenue of $10.2 billion, up 33 percent year over year.