Amazon.com Inc (NASDAQ:AMZN) has reported a knockout set of quarterly numbers as huge demand from locked-down households and businesses during the coronavirus (COVID-129) pandemic continued to more than compensate for a doubling of investment in the business.
The online retailer behemoth also said it will invest more than US$10bn to build a network of 3,236 satellites to provide high-speed broadband internet services around the world, as part of boss Jeff Bezos's “Project Kuiper” plans.
Operating profits of US$5.8bn in the second quarter were up 89.5% on the same period last year, the biggest in the group's 26-year history.
Revenues rose 40% to US$88.9bn during a period when government lockdowns and non-essential restrictions were in force around the world.
Sales and profits were up 43% and 37% in North America, while international sales rose 38% and it swung to a US$345mln profits from a loss last year.
Amazon Web Services (AWS) sales climbed 29% to US$10.8bn, driven by growing demand for cloud computing, while profits from the division were up 58.3% to US$3.4bn
Free cash flow in the quarter came in at US$13.1bn, compared to US$5.6bn a year ago, meaning the group had net cash of US$38.3bn at the end of the first half.
Amazon’s guidance for the next quarter expects net sales of US$87bn-93bn, with operating income of US$2bn-5bn.
With the results released after the closing bell, the stock rose 5% in after-market New York trading, which will take its already gigantic market cap further above the US$1.5trn mark.
“The period has benefited from the closure on nonessential shops and government lockdowns across the world, and in contrast to both the group and the market, the high costs of implementing COVID-19 safety measures and the closure of Amazon physical stores, do not appear to be taking as much of a toll on Amazon’s profit line as initially thought,” said analyst Katie Cousins at Shore Capital.
Going forward, Cousins said she expects the company to continue to spend a large amount of money throughout the rest of the year to maintain COVID-19 safety measures and to uphold its fast delivery service.
“Therefore, as e-commerce demand naturally softens, in line with relaxing of lockdown restrictions around the world, we expect that this will have a greater impact on Amazon’s financials. We believe the company will push forward its physical presence, in particular with its grocery services, and will focus on marketing the benefits of being a Prime member.”
Nicholas Hyett at Hargreaves Lansdown agreed that the massive uptick in retail purchases is probably no great surprise.
“But that growth has been driven by third party sales executed through the Amazon platform is testament to how powerful and scalable the retail model is,” he said.
Hyett was most excited about AWS, though the division grew slightly slower than analysts had hoped, which he said that might explain the somewhat muted share price performance in aftermarket trading.
“But the sheer diversity of contract wins during the quarter underlines just how important cloud computing is becoming to the global economy.
“We hesitate to use the term category killer, but conventional retailers are going to have to deliver some dramatic changes if they’re to compete with the uncontested king of e-commerce.”