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31 July 2020

Amazon

Ben Staniforth, Investment Analyst, Redmayne Bentley
 
The COVID-19 pandemic has become big business for some and, with many consumers in lockdown, Amazon has taken full advantage. The tech giant’s results show that, even with significantly increased costs during the pandemic, profits can still soar.

Revenue came in at nearly US$89bn, up 40% year-on-year as shoppers moved online to meet their discretionary spending needs. The pandemic looks set to further accelerate the structural shift to online-based spending and while the firm is unlikely to continue to experience the exponential growth seen during lockdown months in the long term, it is likely to continue to ride the wave of increased online delivery adoption.

Profits also surpassed even the most optimistic of forecasts, doubling over the same period last year. This comes despite an additional US$4bn worth of COVID-19 related costs as the firm spent heavily on protective equipment and a US$2 per hour bonus for staff which ended in July. This perhaps best highlights the resilience of Amazon’s business model - despite a significant spike in costs related to the pandemic, the firm was still able to double profits. This comes as UK supermarkets, such as Tesco and Sainsbury’s, experience similar spikes in sales (albeit on a much smaller scale), but fail to keep additional costs in check, leading to little or no full-year profit increases.

Also in the spotlight for Amazon this week was CEO Jeff Bezos’ appearance on Capitol Hill, where, along with other big tech CEO’s, he was grilled by Congress on the firm’s anti-competitive practices towards third-party sellers, who use Amazon’s platform to sell their goods. While no decisions have been made as of yet regarding big-tech regulation in the US, the threat continues to loom and Amazon’s recent surge in profits is only likely to renew calls for tighter controls.

Please note that investments and income arising from them can fall as well as rise in value. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
Amazon
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