Amazon reports the best quarter ever amid global crisis

Amazon grew revenues by 40% and doubled net profit during the second quarter, while large parts of the world were in lockdown.

In the galore of quarterly financial releases, Amazon joined the other tech giants which have been subjected to Congress scrutiny to demonstrate that they are not only resilient in the pandemic crisis, they are benefiting from it in a big way.

Amazon’s revenues increased 40% over the same quarter last year to reach $88.9 billion, while operating profit grew by 89% to reach $5.8 billion, and the $5.2 billion net income almost exactly doubled what the company generated for its shareholders a year ago.

“This was another highly unusual quarter, and I couldn’t be more proud of and grateful to our employees around the globe,” said CEO Jeff Bezos.

Amazon’s consumer business takes the headlines, picked up both in Bezos’s press release and by the media. For example, the company spent $4 billion on COVID-19 related programmes including to help keep their employees safe. Amazon increased its workforce to meeting the growing needs and is now employing one million people, making it the second largest employer in America (behind Walmart, and excluding the federal government).

Bezos also highlighted Amazon’s enabler role for third-party merchants, “third-party sales again grew faster this quarter than Amazon’s first-party sales,” a not-so-subtle rebuttal to the accusation that Amazon has plotted to throttle sales of the sellers using its platform while prioritising its own, similar products.

The consumer business benefits directly from the increased online activities during COVID-19. Amazon’s online stores’ net sales went up by 49% year-on-year while the sales from its physical stores, small as they may be, went down by 13%. And this is not only limited to North America. Another bright point of the quarter is that the International Segment turned in a positive operating income for the first time in recent history, making $345 million profit, up from $601 million loss registered in Q2 last year. Meanwhile, Amazon’s revenues from serving third-part merchants using its platform grew by 53%. It may also have benefited from the increased demand for entertainment during the time people spent at home. Amazon Prime’s subscription income went up by 30% (though the benefit of Prime subscription goes beyond access to music and videos).

When the numbers are broken down by business lines, however, the unsung hero is clearly AWS. While the cloud service contributed to 12% of the company’s revenues, it is now responsible for 57% of the total operating income, up from $2.1 billion in Q2 last year to $3.4 billion this year. These two charts illustrate the relative importance of the business lines:

This is the part of Amazon’s business that benefits directly from the new work and life styles imposed during the pandemic as business customers are increasing their investment in cloud infrastructure to meet the growing demand from their customers. For example, among other customer wins during this quarter, AWS is now powering large parts of Zoom and has won the migration of Slack and Genesys Cloud. AWS’s position is going to get even stronger when increasingly telecom operators are embracing a hybrid cloud strategy when migrating to cloud native, with AWS being one of the few viable partners.

Amazon does not see its growth momentum weakening any time soon. It guides to a 24-33% net sales increase and up to 56% increase in operating income.