The pandemic-driven e-commerce surge is expected to drive record sales and profit for Amazon as the company reports its holiday quarter earnings on Tuesday.
Amazon previously set guidance of fourth quarter revenue 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. Annual sales may eclipse $350 billion, setting another record.
Wall Street estimates earnings per share of $7.20, up 11% year-over-year, and revenue of $119.6 billion.
Consumers have turned to online shopping amid the pandemic with social distancing mandates and physical retailers limited in operation. U.S. e-commerce sales grew 47.2% year-over-year from Nov. 1 to Dec. 24, according to Mastercard SpendingPulse. Online sales accounted for 19.7% of overall retail, up from 13.4% last year.
That trend has been a boon for Amazon, which said it delivered billions of products globally during the holiday season. Amazon also pushed its annual Prime Day shopping bonanza to October this year, providing another boost for its Q4 sales.
“Amazon continues to be the go-to company during the pandemic to source all kinds of goods from groceries to hard goods,” said analyst Patrick Moorhead of Moor Insights & Strategy.
But the Seattle tech giant is also spending heavily to increase its delivery capacity and for pandemic-related costs.
Amazon’s COVID-19 expense was already at $7.5 billion through the third quarter and it expected to 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 said in October that the company would grow its fulfillment capacity by 50% in 2020 as it opens more warehouses and delivery stations. Amazon also recently bought more planes. The company’s worldwide shipping costs rose 57% in the third quarter to more than $15 billion.
Amazon may provide an update on Prime membership totals; a year ago it reported 150 million global members. Prime membership sign-ups spiked during the holiday quarter, according to a recent report from CIRP.
To help meet demand, Amazon has been on a hiring spree, adding at least 400,000 full- and part-time jobs last year and 100,000 in October alone. It eclipsed the 1 million employee mark for the first time in the third quarter and employed 1.13 million people worldwide as of Sept. 30, up 50%. It is inching closer to retail rival Walmart, the nation’s largest employer with more than 2.2 million people.
Analysts will also be watching revenue growth for Amazon Web Services, which continues to help drive Amazon’s profits. Last week Microsoft reported a 50% increase in revenue for its Azure cloud computing platform and related services.
Moorhead said he expects good numbers from AWS as more businesses rely on the cloud platform to scale and meet customer needs as companies accelerate their adoption of digital services during the pandemic.
Amazon’s stock price remained stable in the fourth quarter but is up more than 60% over the past 12 months. Wedbush has a 12-month price target of $3,900.
“Amazon should expand profitability by growing spending more slowly than revenues. Amazon Web Services, Fulfillment by Amazon, and ads should drive steady margin expansion, with Prime memberships driving overall retail revenue growth,” Wedbush wrote in a recent research note for the Q4 earnings.
Other key news from Amazon during the holiday quarter include the launch of Amazon Pharmacy, part of the company’s growing healthcare ambitions; its acquisition of podcast platform Wondery; and its shutdown of Crucible, Amazon’s attempt at breaking into the video game market that did not catch on with consumers.
Amazon’s headquarters campus in Seattle, meanwhile, has turned into a COVID-19 vaccination site in recent weeks. Amazon last month also sent a letter to President Joe Biden, offering to help with the country’s vaccination efforts.
Conditions for Amazon warehouse workers have been the subject of scrutiny and criticism from employee activists and politicians. Amazon has implemented safety measures in warehouses and fulfillment centers to help manage COVID-19 cases, and is conducting thousands of tests per day. The company has done more than 1 million tests to date.
