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Amazon’s First Quarter Results Show Growing Sales But Fall In Profit

Yet, quite a transformation from an online book store.
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The Amazon World Headquarters Campus Spheres

Amazon Inc. reported its first-quarter earnings for 2020, with a spurt in sales to the tune of $75 million, a net income of $2.5 billion, and earnings per share of $5.01. North American sales were up 29% to $46.1 billion, while international sales grew 18% to $19.1 billion. The COVID- 19 pandemic saw sales continue for the world’s largest e-tailer though the profits do not seem to reflect these numbers.

Profit fell 29 percent to $2.5 billion, as according to the company, the delivery costs in the crisis time have shot up. “Providing for customers and protecting employees as this crisis continues for more months is going to take skill, humility, invention, and money. If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small,” said Jeff Bezos, the chief executive officer.

He also said that all the profits that they are expecting the next quarter, around $4 billion, would be used in keeping its workers safe and delivering goods to the customers. He calls the spend as “Covid-related expenses.”

In short, revenue was up, but profit was down. Amazon’s cloud computing business grew 33 percent, to $10.2 billion in sales, a little short of what analysts predicted. There has been an increasing demand for streaming services and products and gaming built on Amazon’s cloud. Consumables have gone up too, but the hospitality and travel-related market have contracted severely. Bezos emphasized the measure that the company is taking to keep its workers safe. They have invested in protective equipment, social distancing, cleaning, and sanitization of premises.

He announced an increase in hourly wages for the workers and investment of $300 million in developing in-house Covid-19 testing capabilities. In short, he made it clear that the safety and welfare of its thousands of workers will be at the forefront of the company’s expenses in the coming quarter.

The pandemic crisis saw a surge in online orders for Amazon, so much so that it was overwhelmed by the sheer volume of orders. The number of orders shipped in the last quarter rose to 32 percent compared to a year earlier when the same period saw an increase of 10 percent.

Whenever a surge in demand is expected like the Prime Day sales or during the holiday season, the company prepares in advance to handle the rise in the number of orders, but “the Covid crisis allowed no such preparation,” Brian Olsavsky, the company’s finance chief, said in a call with Wall Street analysts.

Analysts had predicted that profits for the company will shrink. Amazon has hired more people to meet the rise in demands and increased wages by $2 an hour. The company hired about 80,000 warehouse workers in March and 95,000 more in April. This was to meet the shortfall of people who were staying home due to the pandemic.

There has been an increase in demand for consumable items that have lower margins compared to clothes and other non-essential items. “No one likes to sell essentials because that’s a lower-margin business,” said Ron Josey, an analyst with the investment bank JMP Securities.

Amazon, the $1.2 trillion behemoth, has prospered in the last few years, leaving behind all its competitors in the space, becoming the go-to online delivery service. Amazon’s shares have soared 34% so far in 2020.

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