Amazon is set to break revenue records this holiday quarter as it spends heavily on hiring and delivery capacity to meet huge demand amid the pandemic.
As part of its third quarter earnings report, the Seattle company said it expects revenue in the fourth quarter between $112 and $121 billion. That would be a year-over-year increase of 28% to 38%, and the first $100 billion-plus quarter for Amazon. It’s also well past the previous record ($96.1 billion) that was just set in the third quarter.
With COVID-19 cases on the rise again across the U.S., more consumers are expected to turn to e-commerce for their holiday shopping, much like they have during the pandemic and stay-at-home orders. U.S. online holiday sales are expected to reach a record $189 billion, up 33% from 2019, according to Adobe Analytics.
‘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 Thursday.
Amazon’s fourth quarter performance will also get a boost from Prime Day earlier this month. The company’s annual shopping bonanza was delayed this year due to the pandemic.
To help meet demand, Amazon has been on a hiring spree, adding 400,000 jobs this year and 100,000 already in the month of October. It eclipsed the 1 million employee mark for the first time last quarter and now employs a whopping 1.13 million people worldwide, up 50% from this time last year. It is inching closer to retail rival Walmart, the nation’s largest employer with more than 2.2 million people.
Amazon’s current total headcount is actually larger the figures noted above, as they do not include seasonal and contract workers.
The tech giant said this week that it would hire another 100,000 seasonal workers this year, bolstering its fulfilment and distribution operations for the fourth quarter. That’s on top of the 175,000 seasonal workers Amazon hired starting in March and April as the first stage of the pandemic confined many people to their homes. The company later converted 125,000 of those jobs into regular, full-time positions.
Amazon’s hiring comes as other large companies trim their workforce due to the global health and economic crisis. In the earnings news release, Bezos called out the company’s minimum wage.
“Two years ago, we increased Amazon’s minimum wage to $15 for all full-time, part-time, temporary, and seasonal employees across the U.S. and challenged other large employers to do the same,” he said. “Best Buy and Target have stepped up, and we hope other large employers will also make the jump to $15. Now would be a great time.”
Amazon has become a lifeline for customers — from consumers ordering groceries online, to businesses shifting to the cloud. The Seattle company is benefiting from increased online shopping activity and more reliance on cloud computing as digital services accelerate in adoption. Facebook and Google also posted better-than-expected earnings on Thursday.
In a research note published Thursday, RBC Capital said it views Amazon as “perhaps the single biggest COVID beneficiary.”
But the company is also spending heavily to meet demand. Even with more revenue expected for the fourth quarter, its profit guidance — between $1 billion and $4.5 billion — is lower than the $6.3 billion it reported in net income for the third quarter.
Amazon incurred another $2.5 billion in costs related to COVID-19 initiatives in the third quarter — $500 million more than expected — after reporting $4 billion of costs in the second quarter. Its COVID-19 expense is already at $7.5 billion for this year.
The company said today it will incur another $4 billion in COVID-19-related costs during the fourth quarter. The cost calculation includes money spent to help keep employees safe; additional pay for workers; and more. It also factors in lost productivity from changes in Amazon’s process, such as ramping up more new employees, or enforcing social distancing rules inside warehouses. Amazon CFO Brian Olsavsky described the costs as “incremental.”
Olsavsky added that there’s generally “a lot uncertainty” around its holiday guidance, and this year in particular with the pandemic and the presidential election. “We saw some disruption in 2016,” Olsavsky said.
Shipping costs are also skyrocketing as Amazon aims to speed up deliveries to more than 150 million Prime members. During Q3, Amazon spent $15 billion on shipping, up 57%. Its annual shipping costs will likely be north of $50 billion.
Amazon has been building out its own logistics network over the past several years, buying up planes, trucks, and more warehouses. The company will grow its fulfillment capacity by 50% this year — “a significant step up,” Olsavsky said. Amazon has invested $30 billion this year on capital expenditures, or the cost to purchase and operate fixed assets such as warehouses and delivery stations. A large chunk of that is going to the company’s operations areas.
But it is still reliant on third-party delivery partners including USPS and UPS, to help meet delivery promises. “We’re not totally insulated,” Olsavsky said.
Capacity will be tight this quarter for all e-commerce companies, Amazon included. The unusual holiday season will be a stress test for delivery networks that have already been operating at peak levels this year. “Now we’re headed into a peak on top of a peak,” FedEx Chief Marketing Officer Brie Carere told CNN this week.
Even so, Olsavsky said Amazon is “feeling good” about handling demand in Q4. This month’s Prime Day was a good “dry run” for the holiday rush, he said.
But if you want to ensure that your holiday gifts arrive on time, shop sooner rather than later.
“It does behoove shoppers to shop early, both for selection and for also time to delivery,” Olsavsky advised.