Amazon posts mixed results for Q1, but are ads a bright spot?

The company will put its second-quarter profits into new processes to ensure safer facilities.
Amazon

It should come as no surprise that there are some aspects of Amazon’s business that benefitted from the COVID-19 lockdowns.

As much of the world’s shopping habits have moved online – and people have taken to purchasing new items like home gym and office supplies – the company reported net sales of $75.5 billion for the quarter, a lift of 26%. Of that total, $41 billion was attributable to product sales, while $33 billion was attributable to services, which includes Amazon Web Services, video streaming and the company’s fledgling ad business.

Amazon beat analyst predictions on its revenue (expectations were $73.61 billion), but missed the mark slightly on its earnings per share (the actual amount came to $5.01, compared to expectations of $6.25) and net income (Amazon netted $2.5 billion, versus the expected $3.6 billion).

The company also announced that next quarter, it will spend “the entirety” of its expected $4 billion profit on COVID-19-related expenses. This includes better efforts to get products to customers (stock has been an issue for the company during the pandemic), investments in PPE for workers, enhanced cleaning of facilities, “less efficient process paths that better allow for effective social distancing,” higher wages for hourly teams and developing its own COVID-19 testing capabilities.

Amazon reported healthy growth in its “other” segment, which includes advertising revenues (Amazon does not yet report its ad revenues alone as a single segment). This segment grew by 44%, coming to $3.91 billion.

CFO Brian Olsavsky said in the company’s earnings call that ad growth rate remained consistent with the previous quarter (although he did not specify what the specific growth rate was) but that there was some pullback in March. He adds that it was not as sharp a drop as other companies have reported. Twitter, Facebook and Google have all reported a decrease in demand in the latter half of March, although Twitter is the only platform thus far to have offered specificity on the drop (27% year-over-year between March 11 and March 31). Facebook and Google have both said they’ve seen signs of recovery, with Facebook sharing that its April revenues are more-or-less in line with its position a year ago.

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