Amazon.com Inc. projected a steep jump in sales in the current quarter, topping analysts’ estimates, indicating the retailer expects the surge in online shopping during the pandemic to extend through the holiday season.
The company also warned that adjustments to its operations and greater spending due to COVID-19 would continue to weigh on its profitability. Amazon’s operating income forecast fell short of analyst estimates, sending shares down about 1.5 per cent in extended trading.
Revenue will be US112 billion to US121 billion in the period ending in December, Amazon said Thursday in a statement. Analysts, on average, estimated US112.5 billion, according to data compiled by Bloomberg. Researcher EMarketer Inc. projected U.S. e-commerce sales will surge 36 per cent to a record US190 billion during the holiday season.
Amazon has thrived during the pandemic as people avoided stores and shopped online, stocking up on goods from electronics to groceries. The company posted record sales and earnings during the second quarter, comforting investors even though Amazon spent prodigiously on new warehouses to meet surging demand and incurred higher costs hiring hundreds of thouands of workers and keeping those employees safe.
Andrew Lipsman, a principal analyst at EMarketer, said he suspects Amazon is being conservative with its guidance, even the upbeat sales forecast. The company’s projections, and rising U.S. COVID-19 infection rates that may depress in-store shopping, are creating an expectation for a blowout holiday quarter for Amazon, and online retail generally, he said.
“We’re not seeing growth rates in e-commerce coming down,” Lipsman added.
Amazon said fourth-quarter operating income will range from US1 billion to US4.5 billion, compared with analysts’ average estimate of US5.95 billion. Chief Financial Officer Brian Olsavsky said discounts offered during the Prime Day sale — which Amazon moved to October from its usual place in July — also will be a drag on profitability in the current quarter.
Investors traditionally focus on Amazon’s costs, fearing that the company’s spending will cut into its profit. Shares declined to a low of US3,141.30 in extended trading after closing at US3,211.01 in New York. The stock has gained 71 per cent this year.
Amazon said it expected to absorb some US4 billion in costs related to COVID-19 during the quarter, up from US2.5 billion in the third quarter. Shipping expenses jumped 57 per cent to US15.1 billion in the period ended Sept. 30, a steeper increase than the 37 per cent gain in revenue.
Olsavsky said Amazon’s gauge of COVID costs goes beyond providing personal protective equipment and testing of employees, and includes elements like lost productivity from adjusted break times and social distancing in warehoues.
Amazon also reported it crossed the 1 million employee mark, with 1,125,300 full- and part-time workers at the end of the quarter, up 50 per cent from a year ago.
The world’s largest online retailer posted third-quarter revenue of US96.1 billion, up from almost US70 billion a year earlier. Net income was US12.37 a share. Analysts projected US7.55 a share on sales of US92.7 billion.
Analysts widely expect the holiday shopping rush to test the capacity of the U.S. logistics system to accomodate a surge in home delivery. Olsavsky said Amazon was not “totally insulated” from those trends, but the company had spent heavily this year on its own capacity, opening staging and sorting facilities closer to big cities. “It does behoove shoppers to shop early,” he said. “We’ve invested a lot to be ready.”
Sales by Amazon Web Services, the cloud-computing unit that in recent years has accounted for most of Amazon’s operating income, rose 29 per cent to US11.6 billion.