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As Bezos moves on, Amazon posts record Q4 results, but volumes are dropping in Q1-21

Prime Day 2022: bargains now essential in cash-strapped market?

Amazon pushed way beyond the $100bn earnings mark in Q4, hitting $125.56bn (£90bn), up from $87.4bn (£64bn) for the same period in 2019, a rise of 44%. However it expects volumes to drop in Q1 and Q2 2021 as the pandemic flattens and recedes.

Announcing the results, the pureplay behemoth also said that CEO and founder Jeff Bezos is to step down as CEO in Q3 this year. He will be replaced by Amazon Web Services CEO Andy Jassy. Bezos will become executive chairman and will focus on “large one-way-door issues”, says the company, such as acquisitions, strategy and going into grocery. He will also devote more time to his Day One FundBezos Earth Fund, The Washington Post and his private space company Blue Origin.

Amazon’s record results are testament to how well the company has adapted to the new shopping paradigms globally under Covid-19, but it has come at a price.

On an analysts’ call, Amazon CFO Brian Olsavsky said that after months of heavy investments in Covid-19 process and meeting the rising demand for online shopping, the company expects coronavirus-related costs to drop in Q1 2021 to about $2bn, from around $4bn in the third quarter of this year and more than $2bn in the second quarter.

The company also saw higher costs in Q4 from a one-time $300 bonus to front-line employees in November 2020.

For Q1 2021, Amazon forecasts sales of between $100bn and $106bn, a slowdown from the fourth quarter of 2020, but an increase of between 33% and 40% from a year earlier. Analysts were expecting revenue of $95.8bn.

Olsavsky also says that this and the drop in Covid-19-related costs would also be met with a drop in volume of some 25% between Q4 2020 and Q1 2021.

Sales fell 8% in Amazon’s physical store unit, which includes Whole Foods Market, as the pandemic has pushed shoppers to experiment with new shopping methods, including online grocery ordering.

Beyond its core retail business, Amazon has had a good year in its other ventures too. The cloud-computing unit saw its revenue climb 28% to $12.7bn from $9.95bn a year earlier.

Amazon doesn’t report its ad business separately, but it is thought to make up the lion’s share of its ‘other’ revenues, which brought in $7.9bn, an increase of 64% on Q4 2019.

Expert views

Commenting on the results, Hugh Fletcher, Global Head of Consultancy and Innovation at Wunderman Thompson Commerce, speaks for us all when he says: “As the world’s largest digitally native retailer, Amazon was best placed to reap the benefits during the Covid-19 pandemic, and its latest results are testament to that. A digital-ready infrastructure and far-ranging marketplace meant shoppers didn’t need to look any further – and Amazon took advantage of last year’s Q4 ‘peak’ period, with an estimated 65% of Black Friday spend going towards the company as consumers shifted online for their sales shopping. Amazon knew the pain points for consumers as soon as lockdown hit and it delivered – in more ways than one – for customers when they needed it most.”

Vijayanta Gupta, Senior Vice President of Salsify puts the company’s success down to one thing: technology. “Why is Amazon so successful? Simple, it’s a technology company that just happens to be in the retail business. And as a tech company, it spends big on giving consumers the most frictionless shopping experience imaginable. Something that other retailers cannot compete with as they struggle to get digital right.”

He continues: “Amazon has a spirit and agility not traditionally seen in retail. This explains why Amazon’s Q4 earnings have exceeded expectations, just as the brand has been doing for consumers for more than two decades. The UK is one of the world’s fastest-growing ecommerce markets, with nearly 35% growth in 2020 and Amazon alone holds a market share of over 30% of the UK’s ecommerce market, making it a rising force that retailers should fear but brands must embrace.”

However, Fletcher warns that: ““Despite robust results, Amazon isn’t completely exempt from challenges with anti-trust charges around its use of business data. Despite this, the eCommerce giant has continued to tackle negative publicity, launching an “eco-friendly” shopping platform to reassure and consolidate its global customer base. Amazon has massively outperformed the market and will continue to ride the growing tidal wave of online commerce for as long as it delivers for customers and innovates with the times – and with the head of Amazon’s cloud business asked to lead the company, it’s likely Amazon’s focus on technology will continue unabated. For other brands and retailers, they need to find a balanced eCommerce approach so they can sustain challenges in the sector and recover in what will become the most important year of recovery for the retail calendar.”

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