Amazon reports sales growth of 37%, topping estimates

Key Points
  • Amazon reported its third-quarter results after the closing bell on Thursday, soaring past analysts' expectations for profit and sales, which grew 37% year over year.
  • For the fourth quarter, Amazon forecast operating income to fall between $1 billion and $4.5 billion, assuming about $4 billion of costs tied to Covid-19.
Amazon beats top and bottom line in Q3
Amazon beats top and bottom line in Q3

Amazon reported better-than-expected third-quarter results after the bell on Thursday, including soaring profits and 37% revenue growth.

The stock bounced around in extended trading, falling as much as 2%, after Amazon provided a wide guidance range for the fourth quarter.

  • Earnings: $12.37 vs $7.41 per share expected, according to analysts surveyed by Refinitiv
  • Revenue: $96.15 billion vs $92.7 billion expected, according to analysts surveyed by Refinitiv

Amazon said sales in the fourth quarter will be between $112 billion and $121 billion, which comes out to growth of 28% to 38% from a year earlier. Analysts were expecting revenue of $112.3 billion.

The company forecast operating income of $1 billion to $4.5 billion, assuming about $4.0 billion of costs tied to COVID-19. That's a step up from last quarter, when Amazon said it would spend more than $2 billion on coronavirus-related measures.

Amazon CFO Brian Olsavsky said on a call with analysts that the largest portion of these costs stem from "continued productivity headwinds" in its warehouses, including enforcing social distancing rules, extended breaks for workers and other steps "to make sure our people are safe and distanced." The costs also include investments in enhanced cleaning and building out testing capabilities.

"There's productivity drags for things like new hire ramps, social distancing, any break periods, things that we can quantify," Olsavsky said. "This is a change in our process that has hurt productivity."

Still, Amazon continues to be one of the biggest beneficiaries of the pandemic, as consumers flock to the site for essential goods, groceries and household items. The cost of shipping those goods to customers rose during the third quarter, with expenses up 57% from a year earlier to $15.1 billion.

Amazon is expected to face even greater demand heading into the holiday season, with shoppers likely to do the bulk of their gift buying online instead of making trips to the store.

"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," Amazon CEO Jeff Bezos said in a statement.

Bezos also touted Amazon's recent job creation and treatment of warehouse workers, which has been a subject of scrutiny in recent months. He pointed to Amazon's $15 minimum wage and challenged other large employers to "make the jump to $15."

Amazon is one of the few companies that has continued to grow its headcount amid a broader economic downturn due to the coronavirus. The company now counts more than 1.12 million full-time employees across the globe, an increase of 50% year over year. That figure doesn't include Amazon's network of contractors and temporary workers.

Amazon's cloud-computing unit, Amazon Web Services, generated sales of $11.6 billion for the quarter, up 29% and in line with analysts' estimates, according to FactSet. Operating income in the segment of $3.54 billion topped estimates of $3.45 billion.

The company's "other" category, which primarily consists of its advertising business, saw revenue rise 51% to $5.4 billion. Subscription services, including revenue from Prime memberships, climbed 33% to $6.58 billion.

Sales from third-party merchants grew 55%, again outpacing Amazon's first-party business, which increased sales by 38%. Sales fell 10% in Amazon's physical store unit, which includes Whole Foods Market.

Amazon shares are up 74% this year, the best performance among the five most valuable U.S. tech companies.

Three of those companies — Apple, Alphabet and Facebook — also reported quarterly results after the bell on Thursday and all exceeded analysts' estimates.

WATCH: Cramer reacts to Amazon, Alphabet, Apple and Facebook earnings

Cramer reacts to Amazon, Alphabet, Apple and Facebook earnings
Cramer reacts to Amazon, Alphabet, Apple and Facebook earnings