Some news outlets here and here have reported that Amazon is “winning” from the COVID-19 crisis. These reporters suggest that Amazon is set up to profit from peoples’ needs like online shopping, media entertainment streaming, and whole foods, while they are legally obligated to stay at home.
I want to make the argument, based on the company’s recent earning, that this is not the case. While it is true that Amazon has a large role in the COVID-19 crisis to provide for people a destination for online shopping, media streaming, and Whole Foods, based on the company’s earnings, this is not the case. I also want to discuss the $4 billion of operating income Amazon is spending to fight the COVID-19 crisis and the efforts Amazon has put in with its employees, customers, and its community.
The other day, April 30th, Amazon announced its financial results for its first quarter that ended on March 31st. From its financial results, Amazon’s net sales increased by 26% to $75.5 billion in the first quarter compared to 2019’s first quarter of $59.7 billion. However, Amazon’s net income decreased to $2.5 billion from $3.6 billion, and its operating income decreased from $4.4 billion to $4 billion. I am not a financial analyst, but it does not make sense for Amazon to have increasing net sales and not have an increasing net income or operating income without something extraordinary happening. On top of that, Amazon is expecting to spend the entirety of that $4 billion operating income to fight the COVID-19 crisis for the second quarter of 2020.
From these results, Amazon is not “lapping” anybody. Even when we look at the 16% operating cash flow that should tell us Amazon is “winning” the COVID-19 crisis, when in reality that yearly average increase is skewed. There is more of an increase between Q3 and Q4 of 2019 than Q4 of 2019 and Q1 of 2020. I would argue Amazon is putting its customers ahead of its earnings, and the financial results above show it.
What Amazon is doing for its employees
Amazon has done its fair share of ensuring the safety of its hardworking employees. Amazon says it has made over 150 significant process changes at sites around the world to ensure the health and safety of its teams. Some of the more notable changes include obtaining 100 million face masks for associates, drivers, and staff as well as mandatory temperature safety checks for employees and support staff. Out of the $4 billion dollars, Amazon expects to spend in the second quarter, $800 million will go towards safety measures for its employees. Amazon has also hired 175,000 people for its fulfillment and delivery network and has increased minimum wage by $2 an hour from $17 an hour, with overtime doubling that to $34 an hour. In total, from the beginning of the increased pay until May 16th, Amazon says its increased pay will total nearly $700 million. Along with the increased number of workers, Amazon has been working to scale other operations to meet the demands of customers’ order capacity.
Amazon has also been in the process of making regular testing of COVID-19 for its employees. Amazon says it has begun the work of building incremental testing capacity for its front-line employees.
Finally, Amazon has transitioned a team of Amazonians full of research scientists, program managers, procurement specialists, and software engineers to work in the first Amazon-built lab to test on small numbers of employees.
Amazon is ensuring the safety of its customers
It would be quite easy for Amazon to squeeze every penny out of its customers during the COVID-19 crisis where online shopping, Whole Foods, and streaming services are a part of our daily lives. Amazon has taken steps to ensure that its customers are not being taken advantage as well as ensuring the safety of its customers and that it is reaching the demand of the customers’ order capacity. Amazon says it is prioritizing the stocking and delivery of essential items for the fastest delivery. This means customers will get household staples, medical supplies, and other necessities faster. Yes, this includes toilet paper. I hadn’t bought an electronic device on a competing site, BestBuy.com for years and because Amazon prioritized essential items, it wasn’t available for three weeks, so I bought a TV from Best Buy. Net-net Amazon is sacrificing richer sales for lower margin essential items.
Amazon says it has also increased order capacity for Prime Now, Amazon Fresh, and Whole Foods Market. Whole Foods has also adjusted their hours so that customers who are at higher risk, like our elderly and disabled, have a specific store time to avoid those who are at less of higher risk. One of the ways Amazon is keeping its customers from being taken advantage of is by removing over one million offers from its store due to COVID-based price gouging. Amazon says it is also helping customers stay informed and connected with the help of Alexa.
Amazon includes small businesses in its initiative to help its customers during the COVID-19 crisis. Amazon says that is has paused its Amazon lending loan repayments from March 26th to April 10th to small and medium businesses that are third-party sellers in Amazon’s stores. It has also waived a number of fees for businesses that are using Amazon’s long-term storage, inventory storage fees, Strategic Account Services account management, the launchpad program. It is also partnering with American Express in its Stand for Small initiative to provide businesses with free business tools to help with WFH virtual communication and collaboration.
Standing tall for its community
Amazon is one of the many companies doing their part to provide their talents to fight COVID-19. As a, what I would consider everything as a service (XaaS) company, Amazon has many feet in the fight against COVID-19. As I mention some of these great offerings, as the reader, I would like you to pay attention to the numbers. Amazon says it is donating $5 million in Amazon devices to healthcare workers, patients, schools, and communities around the globe. It has provided $10 million in funding to provide relief to over 800 small businesses in Seattle and the Puget Sound through a relief fund. It has donated more than 12,200 laptops as well as online learning services to students. Amazon also says it has committed €21 million to relief organizations in Europe who are affected by COVID-19 and $20 million towards AWS Diagnostic Development Initiative. Amazons giving is on a global level as well as a communal level, and it doesn’t stop there.
Amazon also says it is using Amazon Flex drivers to help food banks deliver 427,000 pounds of groceries for 336,000 meals. It has also partnered with a catering company in Seattle to distribute 73,000 meals to 2,700 elderly and medically vulnerable residents. Amazon also donated $100 million to Feeding America’s COVID-19 Response Fund. The CEO of Feeding America Claire Babineaux-Fontenot said it is the largest single gift in Feeding America’s history.
Amazon had an impressive first quarter. What is more impressive than its earnings, is its giving’s. Amazon is willing to give a lot of its resources to help its employees, customers, and community. Even though Amazon is set up to profit a great deal from the COVID-19 crisis, it is far from winning.
It has ensured the safety of its employees by implementing 150 significant process changes so that employees are safe as well as providing wage increases for employees. Amazon is working hard to ensure the safety of its customers and that it is meeting the demand of customers, especially essential items. It has also given a lot of money to help our local community and our global community. I don’t think the history books will mention how much money Amazon made during the COVID-19 crisis, rather how much they stepped up when they were called.
Note: Moor Insights & Strategy co-op Jacob Freyman contributed to this article.