Jeff Bezos tells shareholders to buckle up: Amazon to blow this quarter's profits and more on coronavirus costs

Cloud-giant-with-a-gift-shop gearing up for the long game

Amazon today reported $75.5bn in revenue for the first quarter of 2020, higher than expected though eroded by exceptional expenses. And it told investors to get used to its free spending ways during the coronavirus pandemic.

"Providing for customers and protecting employees as this crisis continues for more months is going to take skill, humility, invention, and money," said CEO Jeff Bezos in a statement [PDF] accompanying the web giant's latest financial figures.

"If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small."

Bezos said the US mega-corp expects to spend all of its anticipated $4bn Q2 operating profit and then some on COVID-19-related expenses. This includes not only the usual operational outlay to get products to customers, but also to protect the health of employees, something that's been an issue among Amazon workers.

Amazon, according to Bezos, will be spending its cash on protective gear, facility scrubbing, business process changes to allow for greater social distancing, higher wages for hourly workers, and internally developed COVID-19 testing capabilities for employees.

The consensus among analysts had been $73.6bn in sales, so Amazon did almost $1bn better than that. But the money went out the door quicker than expected due to the global health crisis: diluted EPS came to $5.01 while analysts were looking for something more like $6.25. In terms of net income, that translates to $2.5bn, a 31 per cent decrease from $3.6bn a year ago.

In Q1 2019, Amazon collected $59.7bn in revenue, so this latest quarter's sales represent a 27 per cent improvement. The company's EPS for the same quarter last year amounted to $7.09. Operating expenses were $71.4m in Q1 2020, up 29 per cent from $55.2m a year ago.

Amazon Web Services (AWS) delivered $10.2bn in revenue for the quarter, up 32 per cent from $7.7bn a year ago. This marks the first time AWS has exceeded $10bn in revenue for the quarter. The cloud platform's $3bn operating profit was up 36 per cent, year on year, dwarfing Amazon's North America and international retail operations, in terms of profitability. The online store raked in $65bn in sales, up 25 per cent, and operating profit of $914m, down 58 per cent.

The growth of AWS can be in part attributed to the need to operate businesses online during the pandemic-driven shutdown of physical stores.

"The ability for organizations to access scalable, dependable, and highly secure computing power—whether for vital healthcare work, to help students continue learning, or to keep unprecedented numbers of employees online and productive from home— is critical in this situation," said Bezos in a letter [PDF] to shareholders.

On the company's conference call for investors, CFO Brian Olsavsky underplayed the impact of the COVID-19 coronavirus on AWS by ducking invitations from analysts to parrot statements from other cloud companies about revenue benefits of the health crisis.

"We've continued to see a healthy adoption of our business," he said of AWS, suggesting that strong server rental demand is just a continuation of the cloud souk's ongoing success.

Olsavsky recounted how Amazon has responded to the COVID-19 virus pandemic and the effect it has had on operations. In March, he said, the company saw a surge in demand for consumer products and lower demand for discretionary products. While the shift in purchasing patterns created logistical challenges, he suggested Amazon can adapt.

"Shopping is really important for people now, especially when people cannot leave their houses," he said.

Amazon added 175,000 new employees during the quarter, Olsavsky said.

Spending related to the COVID-19 coronavirus reached $600m in Q1, according to Olsavsky, and is expected to exceed $4bn in Q2. A substantial portion of that, $300m, will go toward developing in-house health testing capabilities because there's no partner offering COVID-19 testing at the scale necessary for the biz.

Amazon's stock retreated about five per cent in after-hours trading as investors showed their lack of enthusiasm for the company's plan to try to keep its workers alive. ®