Amazon sees possible second-quarter loss as it forecasts US$4 billion in COVID-19-related costs

Home Business Amazon sees possible second-quarter loss as it forecasts US$4 billion in COVID-19-related costs
Amazon sees possible second-quarter loss as it forecasts US$4 billion in COVID-19-related costs

REUTERS: Amazon.com Inc on Thursday said it could post its first quarterly loss in five years even as revenue surges because it is spending at least US$4 billion in response to the coronavirus pandemic, including plans to test its workforce for COVID-19.

Shares of Amazon, the world's largest online retailer, fell 5per cent in after-hours trade.

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Jeff Bezos, the company's founder and world's richest person, said in a statement, "we're not thinking small," a sign that the e-commerce company would invest heavily during the pandemic. Rival brick-and-mortar retailers have had to shut stores while Amazon hired 175,000 people.

This quarter, with government-mandated lockdowns in full swing, Amazon said it could see a 28per cent rise in revenue to US$81 billion.

Under normal circumstances, Amazon would earn an operating profit of at least US$4 billion in the current second quarter, but its costs will rise by that amount or more so it can respond to the pandemic, the company said. The Seattle retailer forecast operating income will range from a loss of US$1.5 billion to a profit of US$1.5 billion, versus earnings of US$3.1 billion in the same period a year prior.

Amazon has unsettled investors in the past with heavy spending on cloud data centers, streaming video and voice-controlled gadgets, which often paid off in the form of new businesses. Since mid-February, Amazon's shares have risen by more than 10per cent including Thursday's after-hours drop, while the broader stock market has sunk.

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Bezos' personal stake alone has grown by some US$5 billion in that time.

The company is increasing investments because of the novel coronavirus in a similar way, said Kim Khan, U.S. markets analyst at Investing.com.

"Amazon built its commanding position by spending all its cash to grow before it became the profit-making machine it is today. It's doing the same thing during this lockdown period and will likely come out a winner again," Khan said.

At the same time, Amazon is facing new labor risks. The virus has infected workers at dozens of locations, igniting small protests and prompting labor organizers to demand site closures. Amazon has rolled out masks and temperature checks to all its U.S. and European warehouses, announced software to monitor for social distancing and taken other measures to ensure it stays operational.

BOON TO GROCERY, 'MIXED BAG' FOR ADS

Revenue for the first quarter rose 26per cent to US$75.5 billion, beating analysts' average estimate of US$73.6 billion according to IBES data from Refinitiv.

Grocery sales in March were a bright spot for Amazon, which owns Whole Foods Market, Chief Financial Officer Brian Olsavsky said on a call with analysts. Household staples and home office supplies have been in high demand, while interest in discretionary items like apparel dipped, he said.

Last month, the number of people who streamed video on Amazon for the first time nearly doubled, Olsavsky said. Subscription revenue grew 28per cent to US$5.6 billion in the first quarter.

Still, advertising, a lucrative business in which merchants pay for top placement of their goods on Amazon, was somewhat of a "mixed bag," Olsavsky said.

Merchants had less reason to sponsor products in March when the company paused accepting non-essential items into warehouses for delivery. Some pulled back on placing ads, the price of which went down; however, strong traffic to Amazon's websites helped offset the trend, Olsavsky said.

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