You will be redirected back to your article in seconds
Skip to main content

Amazon Delivers $8 Billion Profit Even as Infrastructure Costs Mount

Mere months before Jeff Bezos abdicates his post as CEO, Amazon showed no sign of slowing down. The tech giant hit another milestone in its first quarter, breaking $8 billion in net income for the first time.

Net sales increased 44 percent to $108.5 billion in the first quarter, compared with $75.5 billion in first quarter 2020, and came in above Amazon’s initial guidance of $100 million to $106 million.

The e-commerce giant confirmed that the two-day Prime Day event will be held in the second quarter, but stopped short of giving an actual date.

In a Nutshell: In the U.S. alone, Amazon’s e-commerce sales are projected to grow 15.3 percent in 2021 to $367.19 billion after a meteoric 44.1 percent rise in sales during 2020, according to data from eMarketer.

But more importantly, the company’s share of total U.S. e-commerce sales are projected to increase from a previous mark of 39.8 percent to 40.4 percent in 2021. That 0.6 percentage point gain is will larger than that of any other company this year, eMarketer says.

Amazon has become the starting point for the majority of shopper journeys; 74 percent of consumers begin their product searches there, according to a recent study from Jungle Scout, a sales analytics tool for Amazon sellers. And 56 percent of U.S. consumers say that if they were only able to buy products from a single store, it would be Seattle-based firm.

While the numbers look good for Amazon, the e-commerce giant has ongoing concerns less related to its bottom line. Amazon has been on a quest to rehabilitate its workplace image in the wake of various high-profile lawsuits related to the termination of employees and the denial of meal breaks, Covid-related safety concerns in numerous warehouses, as well as the recent defeat of a unionization push at a Bessemer, Ala. warehouse.

Related Stories

In a shareholder letter earlier this month, Bezos outlined his commitment to making Amazon “Earth’s Best Employer and Earth’s Safest Place to Work” and acknowledged that the company needed to improve worker conditions. This year, Amazon will invest more than $300 million into safety projects throughout the workplace.

On Wednesday, Amazon unveiled that it will raise the hourly pay of more than 500,000 of its 1.3 million employees. These raises will be between at least 50 cents and $3 an hour, which is an investment of over $1 billion in incremental pay. Employees getting raises include customer fulfillment, delivery, package sortation and specialty fulfillment workers.

LinkedIn ranked Amazon at No. 1 on its Top Companies 2021 list, which is designed to help professionals identify the best places to grow their careers. The list used data from LinkedIn’s 740 million members across the globe to rank the most sought-after places to work for professionals in the U.S.

Beyond the commitments to the workplace, Amazon continues to invest in shipping at a rapid pace. First-quarter shipping costs increased 57 percent year over year to $17.1 billion, short of the previous quarter’s record $21.4 billion. During that same stretch, fulfillment expenses increased 43 percent to $16.5 billion from $11.5 billion.

In total, capital expenditures, including infrastructure, have increased 80 percent over the trailing 12 months, chief financial officer Brian Olsavsky said in the company earnings call. The Amazon Logistics (AMZL) partner network of delivery drivers accounts for more than half of shipments worldwide.

“We’re seeing the ability to control the whole flow of products from the warehouse to the end customer,” Olsavsky said. “It’s turned what normally was a batched process where we would hand off a large batch of orders to a third party once a day to a continuous flow process where we continually have orders leaving our warehouses, five or six times a day, going through middle mile and then to final delivery through either through our AMZL drivers or our [100,000] DSP (Delivery Service Partner) drivers.”

Amazon continues to expand its air cargo network to meet growing customer demands, purchasing 11 aircraft from Delta and WestJet to expand its Amazon Air fleet to more than 85 aircraft by the end of 2022. In the quarter, Amazon also announced new Amazon Air sites in Toledo, Ohio, and Fairbanks, Alaska, and plans to expand existing operations in Canada this summer.

As for the upcoming second quarter, Amazon expects net sales to be between $110 billion and $116 billion, or to grow between 24 percent and 30 percent year over year. Operating income is expected to be between $4.5 billion and $8 billion, compared with $5.8 billion in second quarter of 2020. This guidance assumes approximately $1.5 billion of costs related to Covid-19.

Net Sales: Net sales increased 44 percent to $108.5 billion in the first quarter, compared with $75.5 billion in first quarter of 2020. Excluding the $2.1 billion favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 41 percent.

North American net sales jumped 39 percent to $64.4 billion from $46.1 billion in the first quarter of 2020, while international sales increased 50 percent year over year to $30.6 billion from $19.1 billion.

Amazon Web Services (AWS) generated $13.5 billion in the quarter, up 32 percent year over year from the $10.2 billion the cloud computing service took in during the year-ago period.

While Amazon doesn’t disclose advertising sales, they are included in the “Other” category, which saw its revenues grow 77 percent year over year to $6.9 billion.

Physical stores revenue, which includes Whole Foods Market and other brick-and-mortar offerings like Amazon Books, continued to be the major weak point for the company. Sales slumped 16 percent to $3.9 billion.

Net Earnings: Net income increased to $8.1 billion in the first quarter, or $15.79 per diluted share, compared with net income of $2.5 billion, or $5.01 per diluted share, in the year-ago period.

Operating income increased to $8.9 billion in the quarter, compared with operating income of $4.0 billion in first quarter of 2020.

CFO’s Take: Olsavsky noted in the call that Amazon is still in the process of getting its one-day shipment percentages back up to where they were pre-pandemic.

“We’re there in Europe, and we’re starting to see not only strong one-day delivery in Europe but also broader same-day selection—they tend to go hand in hand,” Olsavsky said, “In the U.S., we’ve made improvements and are consistently getting better. I would say the end delivery is really a function of everything before it, namely how well we can handle and process all North American orders in a timely manner. It’s been challenged by the volume, but it’s also been challenged by the rapid expansion of the space. We’re making progress nonetheless, and we hope to get that even higher in 2021.”