Keeping up with demand during the Christmas period will be “tight”, Amazon has warned, advising shoppers to buy early in what it predicts will be yet another record-breaking quarter.
The company said it expected sales in the year’s all-important fourth quarter to comfortably surpass $100bn, in what would be the first time in the company’s history. It offered guidance to investors of between $112bn and $121bn.
“We’ll all be stretched,” said Brian Olsavsky, Amazon’s chief financial officer. “It’s advantageous to the customer, and probably to the companies, for people to order early this year.”
Amazon gave a broad range of possible profit outcomes for the period, estimating operating income between $1bn and $4.5bn. Wall Street had hoped income will surpass $5bn, according to FactSet.
In its third-quarter earnings published on Thursday, Amazon said it recorded net income of $6.3bn between July and September, up from $2.1bn in the same period last year and beating Wall Street expectations by 71 per cent.
Revenues of $96.1bn — boosted by the effects of the pandemic, which has pushed consumers into online shopping — also came in comfortably over estimates.
But its stock fell almost 2 per cent in after-hours trading, a possible result of mounting shipping costs and a further increase in Covid-19-related spending. The stock is up 66 per cent since the beginning of this year.
The company confirmed it now employs more than 1m people worldwide, up 50 per cent this year — not including contractors, such as delivery drivers, or seasonal workers.
Shipping costs increased by $1.4bn during the quarter, up more than $5bn compared to the same period last year, growing at a rate faster than the increase in revenue.
“The expenses are going to be the key,” said Charlie O’Shea, a Moody’s analyst. “I don’t think 20 per cent of sales for Q4 in shipping is out of the question. That’s a big number.”
Jeff Bezos, Amazon’s founder and chief executive, said the company was staffing up for the season.
“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,” he said.
Speaking to investors on Thursday, Mr Olsavsky said its capacity, and that of its delivery partners, would come under strain.
“We rely on third-party shippers,” Mr Olsavsky said. “We know that their capacity will be tight, as will ours. It’s been very tight this year. As we get into Q4 and everything is stepping up, we’re adding [capacity] and using it simultaneously.”
The company said it would incur $4bn in costs related directly to Covid-19 measures, up from $2.5bn in the third quarter, a rise Amazon attributed to a larger number of employees, new warehouses and productivity losses related to social distancing and other measures.*
Its Covid-19 testing capabilities for employees would reach 50,000 tests a day by November, it said. By the end of the year, Amazon predicted, the company will have spent more than $10bn handling Covid-19.
The predictability of revenues from Amazon’s cloud computing business AWS has cushioned the blow from steadily growing costs.
There, revenue grew 29 per cent in the third quarter, in line with its annual growth rate over the past few quarters. Previously the company’s major growth engine, Amazon now faces stronger competition. Microsoft’s cloud business, Azure, grew 48 per cent in the same period.
Amazon also increased its “other” revenue in the third quarter, which mostly consists of advertising, by just under 50 per cent to $5.4bn. It was the second successive quarter in which the group made more money from selling advertising than it did from Whole Foods and other bricks and mortar stores.
“We just had a lot more traffic,” Mr Olsavsky said of the advertising growth. “We do a good job of turning that traffic into valuable real estate.”
*An earlier version of this story included an estimated figure for third-quarter costs related to Covid-19, and has been updated with the disclosed figure
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