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Amazon forecasts jump in holiday sales - and pandemic costs

Reuters | Updated: 30-10-2020 10:21 IST | Created: 30-10-2020 02:13 IST
Amazon forecasts jump in holiday sales - and pandemic costs
Representative image Image Credit: ANI

Amazon.com Inc on Thursday reported record profit for the second consecutive quarter and forecast a jump in holiday sales, as consumers continued to shop more online during the novel coronavirus pandemic.

Shares initially rose 2% in after-hours trading and then turned lower by 1% as the company forecast $4 billion in COVID-19 related costs for the current period and operating income below Wall Street's expectations. Since the start of the virus outbreak in the United States eight months ago, consumers have turned increasingly to Amazon for delivery of groceries, home goods and medical supplies. Brick-and-mortar shops closed their doors; Amazon by contrast moved to recruit over 400,000 more workers and earned $6.3 billion in the just-ended third quarter, the most in its 26-year history.

That has kept the world's largest online retailer at the center of workplace and political tumult. Democratic politicians this month accused Amazon of holding "monopoly power" over merchants on its platform, which the company disputes. Meanwhile, more than 19,000 of Amazon's U.S. employees contracted COVID-19, and some staff protested for site closures. Amazon has responded with an array of precautions and a virus testing program for employees that have helped the company stay operational. For the third quarter, it garnered sales of $96.1 billion, ahead of analysts' average estimate of $92.7 billion, according to IBES data from Refinitiv.

Jeff Bezos, Amazon's chief executive and richest person in the world, said in a press release, "We're 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." At the same time, logistics costs have been rising in recent months as Amazon worked to cut standard delivery times for Prime loyalty club customers, and the pandemic has only added to its challenges. Chief Financial Officer Brian Olsavsky said on a conference call that the company incurred $2.5 billion in COVID-19 related costs in the third quarter.

Rather than one-day shipping, customers earlier this year reported weeks-long wait times, even driving some shoppers to make purchases elsewhere. Amazon forecast operating profit for the current quarter to be between $1.0 billion and $4.5 billion, short of $$5.8 billion analysts expected, according to research firm FactSet.

Amazon Web Services (AWS) has traditionally been a bright spot. The cloud computing division has seen sales rise with demand for gaming and remote work. The unit increased revenue 29% to $11.6 billion, roughly in line with estimates. The question for some analysts has been whether Amazon's consumer division can keep up with still-growing purchases during a pandemic and peak holiday shopping season.

The company has long worked to avoid a repeat of the 2013 season when delays left some without presents on Christmas Day. Amazon now handles more deliveries in house, and this year it moved its marketing event Prime Day - usually in July - to October, letting customers place holiday orders early. Amazon said it expects net sales of $112 billion to $121 billion for the fourth quarter. That would mark the company's first over $100 billion and is ahead of analysts' expectations of $112.3 billion.


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