Amazon expects to spend $4 billion or more the predicted operating profit for the company’s entire coming quarter just on COVID-19-related expenses. Amazon reported a big jump in sales for the first quarter in 2020. But that also equated to a sharp increase in costs, which unfortunately resulted in lower profits, and a dip in Amazon’s stock in after-hour trading.
In the company’s latest earnings release, it reported net sales of $75.5 billion, which is 26 percent more than this time last year. Unfortunately, net income went down to $2.5 billion, due to an increase in spending. In the past month, for example, Amazon has hired more than 175,000 people and has also increased the pay of its hourly workers.
And it won’t stop there. CEO Jeff Bezos said in a statement that the company will spend $4 billion of its profits in this coming Q2 on COVID-related expenses. “Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit,” he said. “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.” Such expenses include investments in personal protective equipment, enhanced cleaning of its facilities, higher wages for its workers, and “less efficient process paths that better allow for effective social distancing.”
“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,” said Bezos.
Amazon has faced accusations recently of poor working conditions from warehouse workers, delivery personnel and Whole Foods employees. In a statement, Amazon responded to this by outlining several ways it’s helping its employees, such as procuring 100 million face masks and requiring them to be worn by all staff. It also said it has a team dedicated to increasing testing capacity it’s building its first lab and has already started to test front-line employees.
One of the more interesting bits from Bezos’ statement was that Amazon has a team of current employees that are working to build “incremental testing capacity.” So far, the team has built a lab to pilot tests for its frontline employees, and it pledges to share any progress the team makes to the greater effort against COVID-19.
Amazon’s Q1 2020 performance fell in line with its guidance from late last year, with $4 billion in operating income. Its net sales were at $75.5 billion, which outpaced the growth that it expected last quarter. AWS, its cloud computing services, saw a huge increase year over year, bringing in $10.2 billion this quarter, which is up from $7.7 billion in the same quarter in 2019.
Against the backdrop of the COVID-19 pandemic, these numbers reveal that Amazon at least so far is rolling with the punches and keeping up with the unprecedented demand seen for orders around the globe. That it’s publicly pledging a tremendous amount of money toward COVID-19 efforts is notable as well. Although Amazon is on a hiring spree to keep up with demand no doubt a good thing for people in need of work it doesn’t overshadow the controversy surrounding its treatment of employees during this difficult time.
