Sat, May 02, 2020 page10

• Amazon sees possible Q2 loss as it forecasts virus costs

  • Reuters
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  Amazon.com Inc on Thursday said it could post its first quarterly loss in five years even as revenue surges because it is spending at least US$4 billion in response to the coronavirus pandemic, including plans to test its workforce for COVID-19.

  Shares of Amazon, the world’s largest online retailer, fell 5 percent in after-hours trade.

  “We’re not thinking small,” Jeff Bezos, the company’s founder and world’s richest person, said in a statement, a sign that the e-commerce company would invest heavily during the pandemic.

  

  Workers at an Amazon fulfillment center in the Staten Island borough of New York protest conditions in the company’s warehouse on March 30.

  Photo: AP

  Rival brick-and-mortar retailers have had to shut stores while Amazon hired 175,000 people.

  This quarter, with government-mandated lockdowns in full swing, Amazon said that its revenue could rise 28 percent to US$81 billion.

  Under normal circumstances, Amazon would earn an operating profit of at least US$4 billion in the current second quarter, but its costs would rise by that amount or more so it can respond to the pandemic, the company said.

  The retailer forecast operating income would range from a loss of US$1.5 billion to a profit of US$1.5 billion, versus earnings of US$3.1 billion in the same period a year earlier.

  The company is increasing investments because of the novel coronavirus, Investing.com US markets analyst Kim Khan said.

  “Amazon built its commanding position by spending all its cash to grow before it became the profit-making machine it is today. It’s doing the same thing during this lockdown period and will likely come out a winner again,” Khan said.

  At the same time, Amazon is facing new labor risks. The virus has infected workers at dozens of locations, igniting small protests and prompting labor organizers to demand site closures.

  Amazon has rolled out masks and temperature checks to all its US and European warehouses, announced software to monitor for social distancing and taken other measures to ensure it stays operational.

  Revenue for the first quarter rose 26 percent to US$75.5 billion, beating analysts’ average estimate of US$73.6 billion, according to IBES data from Refinitiv.

  Grocery sales in March were a bright spot for Amazon, which owns Whole Foods Market, chief financial officer Brian Olsavsky said on a call with analysts.

  Household staples and home office supplies have been in high demand, while interest in discretionary items such as apparel dipped, he said.

  Last month, the number of people who streamed video on Amazon for the first time nearly doubled, Olsavsky said.

  Subscription revenue grew 28 percent to US$5.6 billion in the first quarter.

  Still, advertising, a lucrative business in which merchants pay for top placement of their goods on Amazon, was somewhat of a “mixed bag,” he said.

  Merchants had less reason to sponsor products in March when the company temporarily stopped accepting nonessential items into warehouses for delivery. Some pulled back on placing ads, the price of which went down; however, strong traffic to Amazon’s Web sites helped offset the trend, he added.

  Advertising and other revenue was up 44 percent in the first quarter to US$3.9 billion.

  Amazon Web Services (AWS), the company’s cloud computing unit, is also seeing demand vary by industry.

  Hospitality and travel customers quickly and severely cut their spending. Remote education and entertainment services had much higher AWS usage, and overall, revenue increased 33 percent to US$10.2 billion, short of analysts’ estimate of US$10.3 billion.

  In the midst of the change, Amazon expects to spend US$300 million in the second quarter to develop the capability to test staff for the virus, Olsavsky said.
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