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Amazon Q1 - Increased Covid Costs

On Thursday evening Amazon released its Q1 numbers. The company saw a 26% surge in sales, increasing to $75.5 billion for the first three months of this year. There has been a spike in demand for online e-tail, so much so that Amazon has had to hire an extra 175 000 people. In some parts of the world they have also had to prioritise certain orders, to make sure that people get their necessitates.

Unfortunately, all the increased sales have not translated into increased profits. Net Income dropped to $2.5 billion, down from the $3.6 billion we saw last year. Part of the reason in the drop in profits is due to Amazon spending more money to keep employees safe. The company is going as far as building their own lab to process Covid-19 tests. For the next quarter, Amazon expects the increased Covid-19 costs to amount to around $4 billion.

As usual, Amazon says that they are focusing on the long term and not the short term. That is the reason to own the stock; a management team who have their eye on the horizon. In the short term, Covid-19 spending is putting pressure on profits. The company says there is a chance that they will make a loss in Q2. Long term though, Amazon is securing new customers. A key to keeping those customers is making sure that Amazon warehouses and distribution hubs stay open, and virus free. To do that, they need to spend the extra money now.

The jewel in the Amazon crown, AWS, saw an increase of 33% in its sales. Coupled with the increase in sales, was also a margin increase, rising from 26% to 30%. It is a truly amazing business as they have doubled revenue in two years, while at the same time keeping a healthy profit margin. All in all, the Amazon share price is volatile but it needs to be part of any long term focused portfolio.


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