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Technology

Amazon Sees Possible Q2 Loss As It Forecasts €3.7bn In COVID-19-Related Costs

Amazon.com has said that it may be set to post its first quarterly loss in five years even as revenue surges because it is spending at least €3.7 billion ($4 billion) in response to the coronavirus pandemic, including plans to test its workforce for COVID-19.

Jeff Bezos, the company's founder and world's richest person, said in a statement, "we're not thinking small," a sign that the e-commerce company would invest heavily during the pandemic.

Rival brick-and-mortar retailers have had to shut stores while Amazon hired 175,000 people.

Revenue Increase

This quarter, with government-mandated lockdowns in full swing, Amazon said it could see a 28% rise in revenue to $81 billion.

Under normal circumstances, Amazon would earn an operating profit of at least $4 billion in the current second quarter, but its costs will rise by that amount or more so it can respond to the pandemic, the company said.

The Seattle retailer forecast operating income will range from a loss of $1.5 billion to a profit of $1.5 billion, versus earnings of $3.1 billion in the same period a year prior.

Amazon has unsettled investors in the past with heavy spending on cloud data centers, streaming video and voice-controlled gadgets, which often paid off in the form of new businesses.

Share Price

Since mid-February, Amazon's shares have risen by more than 10% including Thursday's after-hours drop, while the broader stock market has sunk.

Bezos' personal stake alone has grown by some $5 billion in that time.

The company is increasing investments because of the novel coronavirus in a similar way, said Kim Khan, U.S. markets analyst at Investing.com.

"Amazon built its commanding position by spending all its cash to grow before it became the profit-making machine it is today. It's doing the same thing during this lockdown period and will likely come out a winner again," Khan said.

Boon For Grocery Business

Revenue for the first quarter rose 26% to $75.5 billion, beating analysts' average estimate of $73.6 billion according to IBES data from Refinitiv.

Grocery sales in March were a bright spot for Amazon, which owns Whole Foods Market, Chief Financial Officer Brian Olsavsky said on a call with analysts.

Household staples and home office supplies have been in high demand, while interest in discretionary items like apparel dipped, he said.

Still, advertising, a lucrative business in which merchants pay for top placement of their goods on Amazon, was somewhat of a "mixed bag," Olsavsky said.

Amazon Web Services

Amazon Web Services (AWS), the company's cloud computing unit, also is seeing demand vary by industry. Hospitality and travel customers quickly and severely cut their spend. Remote education and entertainment services had much higher AWS usage, and overall, revenue increased 33% to $10.2 billion, short of analysts' estimate of $10.3 billion.

In the midst of the change, Amazon expects to spend $300 million in the second quarter to develop the capability to test staff for the virus, Olsavsky said.

That could approach $1 billion for the full year if the early effort is successful, with the goal of "making testing widely available," he told reporters earlier on Thursday.

News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.

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