Building Amazon

Amazon Continues To Grow

Amazon has been one of the success stories of 2020 and their third quarter results have shown that the trend is not stopping.

The latest report shows that they have had a revenue growth of 37% with fourth quarter sales predicted to be between $112 billion and $121 billion, an increase of 10 per cent on last year and an increase on the $112.3 billion analysts had expected. Further forecasts by the online shopping company predict that their operating income will be between $1 billion and $4.5 billion, assuming Covid-19 related costs of around $4 billion, an increase on last quarter that saw Amazon confirming they would be investing over $2 billion on coronavirus-related activity.

Speaking with analysts Brian Olsavsky, Amazon’s CFO, confirmed that the majority of the spend was due to “continued productivity headwinds” at their warehouses.  The measures, intended “to make sure our people are safe and distanced” include implementing social distancing guidelines and extra cleaning as well as ensuring all workers had elongated breaks. Olsavsky said, “There’s productivity drags for things like new hire ramps, social distancing, any break periods, things that we can quantify.  This is a change in our process that has hurt productivity.” Amazon’s continuing increase in profits is primarily based on the fact millions around the world are continuing to order online in an attempt to stay safe from coronavirus.  As well as treats and luxuries Amazon provides many household and grocery requirements, and even with shipping costs increasing – expenses rose by 57% to $15.1 billion this year – their revenue was still a record amount. And with the holiday season just around the corner Amazon is expecting an even higher demand as more shoppers this year opt for online shopping than heading to the mall.

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Jeff Bezos, Amazon’s CEO with a net worth of $197 billion, released a statement saying, “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.” Although Amazon has recently been under scrutiny, especially regarding the way they treat their warehouse employees, Bezos highlighted the fact that they offer a minimum wage of $15, challenging other employers to also “make the jump to $15.”

While many companies have had to layoff many of their workers Amazon has continued to employee staff both here and overseas.  At the time of writing the company has over 1.12 million full time personnel, up by around 50% from last year, and does not account for the thousands of temporary employees or contractors they also hire.

It is not just their revenue that has seen a growth.  The cloud-computing arm of the Amazon operation – Amazon Web Services (AWS) – saw sales of $11.6 billion for the same period, an increase of 29%.  Much of this has been due to governments, start-ups and larger companies utilizing the services to enable their companies to benefit from the networking, storage and computing tools that AWS provide.  And with many pupils being taught via online teaching, schools have also turned to the company for the infrastructural needs.

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 According to their latest report, AWS saw revenue reach $11.6 billion, roughly the amount that had been estimated, showing that the growth has remained at around 29% as in the second quarter. The operating income also saw an increase of 56% as AWS confirmed they generated over $3.54 billion, which came with a 30.5% operating margin, slightly less than the second quarter’s 31.1%. Overall, 57% of Amazon’s third quarter’s operating income has come from AWS, a figure that has led to some sectors worried that “Amazon uses its high and steady profits from AWS” to bolster the areas of its business that may be less profitable.

However other areas of Amazon’s company actually grew at a faster rate than AWS during the third quarter.  International revenue grew by 37% while North American revenue saw an increase of 39%.  Overall, Amazon has grown by 37%. One of the biggest hits of 2020 has been the use of online video conferencing companies and AWS introduced a tool, similar to the Twitch service, which their customers can utilize when they want to host live streaming.  In fact, Amazon has already confirmed they will be hosting their Reinvent customer conference, usually held in Las Vegas, online due to the pandemic.

Amazon’s ‘other’ category – predominantly their advertising company – saw an increase in revenue of 51%, taking their revenue up to $5.4 billion.  Meanwhile having the majority of the world at home at some point in the year saw Prime memberships increase by 33%, bringing the revenue up to $6.58 billion. The company’s shares saw an incredible climb, growing by 74% during 2020 and making them the most profitable out of the top five US tech companies.  Facebook, Alphabet and Apple also reported higher quarterly results compared to analysts previous estimates.

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