Despite significant sales increase, Amazon reports shrinking profit

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Amazon (NASAQ:AMZN) has been one of the few companies that have been doing exceptionally well during this coronavirus pandemic. Overall, it’s not that surprising, especially since e-commerce companies have seen their sales surge as more and more people resort to online shopping instead of doing their shopping in person. Although Amazon reported its recent quarterly results on Thursday that showed soaring quarterly sales figures, the e-commerce giant actually ended up falling short of its profit target.

Amazon reported that revenue rose by a staggering 26% in comparison to the same time last year, with this quarter’s revenue coming in at $75.5 billion. While this time of the year tends to be a slower growing time for the company historically, these results have set a record high for the e-commerce giant. The issue, however, came down to profitability. Amazon reported that its net income fell by 29% to just $2.5 billion, which is significantly below the $3.3 billion that Wall Street was expecting from the company.

While it might seem a little surprising at first, especially since revenues have increased by so much, the reality is a little bit more complex. While Amazon has seen a surge in customers buying products online, this has ended up straining the company’s fulfillment centers and the overall supply chain. At one point, the company decided to stop taking inventory for products that weren’t deemed crucial, while also hiring hundreds of thousands of extra employees to keep up with demand.

The end result is that overall expenses were higher than they normally would be, and with the company having had little time to optimize their operations, it makes sense that losses for the quarter were high. While Amazon is one of the largest companies in the world, it’s easy to forget that the company operated on an extremely tight margin, often making no profit at all when the company was in its earlier, growing stage. Amazon might be a finely tuned machine, but it’s clear that the company’s profitability can quickly go out the window when there’s a sudden spike in demand.

While shares of the e-commerce giant were up 4.3% over the course of the day, they quickly changed course and shed 5.6% of their value once this news came out. Amazon has been one of the best-performing companies over the past couple of months, gaining almost 50% of its value since mid-March. Although these new financial figures were a little disappointing in some respects, it’s unlikely to change the fact that Amazon’s revenue’s will continue to stay strong going forward.

Amazon Company Profile

Amazon is among the world’s highest-grossing online retailers, with $233 billion in net sales and roughly $311 billion in estimated physical/digital gross merchandise volume in 2018. Online product and digital media sales accounted for 53% of net revenue in 2018, followed by commissions, related fulfillment and shipping fees, and other third-party seller services (18%), Amazon Web Services’ cloud computing, storage, database, and other offerings (11%), Prime membership fees and other subscription-based services (6%), product sales at Whole Foods and other physical store retail formats (7%), and advertising services and cobranded credit cards (4%). International segments constituted 32% of Amazon’s non-AWS sales in 2018, led by Germany, the United Kingdom, and Japan. – Warrior Trading News

 

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