Amazon today reported earnings for its second fiscal quarter of 2020, including revenue up 40% to $88.9 billion, net income of $5.2 billion, and earnings per share of $10.30 (compared to revenue of $63.4 billion, net income of $2.6 billion, and earnings per share of $5.22 in Q2 2019). North American sales were up 43% to $55.4 billion, while international sales grew 38% to $22.7 billion.
The results were highly anticipated since they encompass Amazon’s first full quarter during the coronavirus pandemic, not to mention the company’s leadership position in online retail and the cloud. Last quarter, Amazon’s guidance for Q2 included a note for “$4.0 billion in costs related to COVID-19.” For Q3, Amazon expects another “$2.0 billion of costs related to COVID-19.” The company does not want to be seen as benefiting too much from the pandemic. (Amazon’s $5.2 billion in quarterly profit is the largest ever in its 26-year history.)
Analysts had expected Amazon to earn $81.53 billion in revenue and report earnings per share of $1.46. The retail giant thus easily beat on both. The company’s stock was up less than 1% in regular trading and up 5% in after-hours trading. Amazon gave third-quarter revenue guidance in the range of $87.0 billion and $93.0 billion, compared to a consensus of $86 billion from analysts.
COVID-19 impact on the quarter
Amazon CEO Jeff Bezos, who testified during the virtual antitrust hearing yesterday, provided a longer-than-usual statement in Q1. He did the same again in Q2, which is no surprise, given the company’s role during the pandemic and the coronavirus’ impact on its bottom line. Bezos highlighted Amazon’s actions with regards to COVID-19 and talked up the company’s broader impact, including job creation:
This was another highly unusual quarter, and I couldn’t be more proud of and grateful to our employees around the globe. As expected, we spent over $4 billion on incremental COVID-19-related costs in the quarter to help keep employees safe and deliver products to customers in this time of high demand — purchasing personal protective equipment, increasing cleaning of our facilities, following new safety process paths, adding new backup family care benefits, and paying a special thank you bonus of over $500 million to front-line employees and delivery partners. We’ve created over 175,000 new jobs since March and are in the process of bringing 125,000 of these employees into regular, full-time positions. And third-party sales again grew faster this quarter than Amazon’s first-party sales. Lastly, even in this unpredictable time, we injected significant money into the economy this quarter, investing over $9 billion in capital projects, including fulfillment, transportation, and AWS.
Amazon said it increased grocery delivery capacity by over 160% and tripled grocery pickup locations in the quarter “to support customers during COVID-19.” Year-over-year, online grocery sales tripled in Q2.
The company’s release also stated it had donated more than $10 million in personal protective equipment, including 4.4 million masks and thousands of contactless thermometers, to Direct Relief and Feeding America. Amazon wants to be seen as spending money, not just making money, in response to the pandemic.
AWS sees sub-30% growth
In Q1, Amazon Web Services (AWS) passed the $10 billion milestone, even as growth continued to slow. In Q2, AWS growth fell to 29% — the first sub-30% growth rate since Amazon started breaking out AWS numbers. The growth rate has been falling steadily for the past two years, but COVID-19 looks to be accelerating this trend.
$AMZN AWS revenue growth
– Q1 2017: 43%
– Q2 2017: 42%
– Q3 2017: 42%
– Q4 2017: 45%
– Q1 2018: 49%
– Q2 2018: 49%
– Q3 2018: 48%
– Q4 2018: 45%
– Q1 2019: 41%
– Q2 2019: 37%
– Q3 2019: 35%
– Q4 2019: 34%
– Q1 2020: 33%
– Q2 2020: 29%https://t.co/r0XghGABL2
— Emil Protalinski (@EPro) July 30, 2020
AWS is the cloud computing market leader, ahead of Microsoft Azure and Google Cloud. High-percentage growth cannot continue unabated. For a market leader, growth of 29% in sales to $10.8 billion is still impressive. But it’s certainly not the good news Amazon was hoping for. AWS accounted for about 12.1% of Amazon’s total revenue for the quarter, which is on the lower end. AWS is “a $43 billion annualized run rate business, up nearly $10 billion in run rate in the last 12 months,” CFO Brian Olsavsky said on the Q2 earnings call.
Subscriptions and “other” (ads)
Subscription services were up 29% to $6.02 billion. This segment mainly constitutes Amazon Prime and its 150 million paid members. Amazon had two main talking points for Prime today: Camp Prime and Prime Video. The former is a partnership with Boys & Girls Clubs of America to keep kids engaged during the summer. The latter gained features for interacting with friends via desktop chat (Watch Parties) and to manage multiple people on an account (Profiles).
Amazon’s “other” category, which mostly covers the company’s advertising business, was up 41% to $4.22 billion in revenue. The company knows plenty about what its customers want to buy, or don’t want to buy, and so its advertising business continues to pay dividends. On the Q1 earnings call, Olsavsky said Amazon saw “some pullback from advertisers and some downward pressure on price” in March. But he also noted that it wasn’t “as noticeable as maybe some others are seeing, and probably offset a bit by the continued strong traffic we have to the site.” It appears that all is well in ad-land for Amazon. Olsavsky didn’t talk much about ads on the Q2 call.
As always, Alexa was mentioned many times (10, to be exact) in the company’s press release, even though Amazon won’t break out the voice assistant in its earnings reports. In Q1, the company noted that Alexa “can now answer tens of thousands of questions related to COVID-19.” It didn’t say anything similar for Q2.