Tech

Amazon sales soar as pandemic fuels online shopping

Key Points
  • Amazon reported its second-quarter results after the closing bell on Thursday, trouncing earnings expectations and reporting double-digit revenue growth year over year.
  • Amazon continues to work on getting its fulfillment operations back on track after it was hit with a flurry of online orders at the height of the pandemic
  • The company confirmed this year's Prime Day shopping event will take place in the fourth quarter. 
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Amazon beats, reports revenue of nearly $89 billion

Amazon reported blowout second-quarter results on Thursday, including a huge beat on the top line and double-digit revenue growth year-over-year, helped by surging sales amid the coronavirus pandemic. The stock climbed about 5.3% after hours.

Here's how the company did: 

  • Earnings: $10.30 per share vs. $1.46 expected, according to analysts surveyed by Refinitiv
  • Revenue: $88.91 billion vs. $81.56 billion expected, according to analysts surveyed by Refinitiv

Amazon, like many other retailers, was caught off guard by an influx of online orders during the pandemic, which resulted in logistics bottlenecks and supply chain shortages. The company's one- and two-day delivery services were hampered with delays, marking a rare disruption in its normally speedy shipping operations. Amazon said online grocery sales tripled year-over-year in the second quarter and it increased grocery delivery capacity by more than 160%. 

"This was another highly unusual quarter, and I couldn't be more proud of and grateful to our employees around the globe," Amazon CEO Jeff Bezos said in a statement. 

As the pandemic wore on, consumer demand shifted away from consumables and groceries, categories that aren't "super profitable" for the company, and toward a more normal mix of products, Amazon CFO Brian Olsavsky told CNBC's Deirdre Bosa. Amazon was also able to "ship a lot more," Olsavsky said. 

One- and two-day shipping have since recovered somewhat but are "probably considerably behind the going in rate before any of this happened," Olsavsky said on a call with analysts. 

The company was able to secure additional capacity in its fulfillment centers to absorb demand, pulling "capacity we didn't think we'd need until 2021," Olsavsky said. Still, demand continues to skyrocket, while Prime subscribers have been shopping more often and buying more products with each order, he added.

Amazon is focused on making more room in its fulfillment centers as it prepares to head into the peak holiday shopping season in November. Additionally, its Prime Day shopping event, which typically occurs mid-July, will now take place in the fourth quarter, aligning with the early October guidance it sent third-party sellers. 

Earlier this month, Amazon said it would institute quantity limits for product shipments from third-party sellers that use its U.S. warehouses, as part of an effort to make sure there's enough space to store goods. 

"As we move into Q3, we need to build more inventory for Q4," Olsavsky said. "We've got our hands full on that challenge, but we've got a really good team that's been working very hard probably since late February on this issue."

As online orders continue to roll in, the company faces another challenge inside its warehouses. Tensions have been growing between Amazon and warehouse workers nationwide, with employees claiming the company hasn't done enough to protect them from catching the coronavirus. 

Amazon said it expects to spend more than $2 billion during the third quarter on additional coronavirus-related measures, including procuring personal protective equipment, deep cleaning its facilities and wage increases for employees, among other things. Last quarter, Amazon said it would spend all of its estimated $4 billion profit between April and June on similar efforts.

For the third quarter, Amazon said it expects net sales to come in between $87 billion and $93 billion, representing year-over-year growth between 24% and 33%. The company anticipates a range of an operating income of $2 billion and $5 billion, which factors in additional coronavirus-related investments. 

Amazon's cloud-computing unit, Amazon Web Services, reported revenues of $10.81 billion for the quarter, up 29% year over year, but decelerating slightly from the 33% growth it reported in the first quarter. Cloud services like Amazon's have become crucial to organizations during the pandemic as many of their employees have shifted to remote work. However, with companies looking to cut costs as a result of the broader economic downturn, Amazon, Microsoft and Google have all seen cloud revenue growth slow down year over year. 

Amazon's "other" category, which is primarily made up of its advertising business, generated $4.22 billion in revenue, up 41% year over year. Subscription services, which includes revenue from Prime memberships, were up 29% year-over-year to $6.02 billion.

Third-party sales grew 52% year-over-year during the quarter, outpacing growth in Amazon's first-party sales, which increased 48% year-over-year.