Amazon Unsure When Prime 1-Day Delivery Will Resume, Citing Warehouse Questions
Unlike for Prime Day and the holiday season, the COVID-19 crisis allowed for no preparation for “spikes in demand,” said Amazon Chief Financial Officer Brian Olsavsky on a Thursday earnings call. Customer demand remains high but “at a cost” -- for essential items with lower average selling prices, he said. It’s “up in the air” when Amazon will resume one-day delivery service for Prime members, Olsavsky said, saying it could be Q2, Q3 “or beyond.” The challenge is in speeding up warehouse operations.
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Q1 revenue increased 26% to $75.5 billion for the quarter ended March 31. Amazon shoppers focused on health and personal care, groceries and home office supplies, Olsavsky said. Wireless products were among the discretionary categories with lower demand. The stock closed down Friday 7.6% at $2,286.04.
Amazon invested more than $600 million in COVID-19-related costs in Q1 and expects to top $4 billion in Q2. Costs included outfitting and cleaning facilities for social distancing, onboarding 175,000 new employees, buying personal protective equipment for employees, paying hourly workers higher wages, and investing “hundreds of millions" of dollars to develop COVID-19 testing capabilities, said the executive. It built in another $400 million for increased reserves for “doubtful accounts.”
Amazon’s investment in COVID-19 testing in Q2 will be about $300 million, “if we’re successful,” Olsavsky said. Tests aren’t available on the scale Amazon needs for its employees so “we are working to do that ourselves.” On whether that could be a future business path, he said the company’s main concern is getting tests for its employees, and “then potentially as we have excess capacity, perhaps we can help in other areas.”
The company is seeing a pickup in Prime memberships, with customers shopping more often and with larger baskets. First-time Prime Video viewers nearly doubled in March. “Shopping is really important for people now” when they can’t leave their homes, Olsavsky said, and they’re getting a chance to use “all of their Prime benefits that maybe they hadn’t used as much in the past.” Prime Video and the NFL announced a multiyear agreement to deliver a live digital stream of 11 Thursday Night Football games as well as exclusive global streaming rights to one more regular season game.
The company introduced a new speaking style for Alexa skills, enabling U.S. developers to build more natural long-form content experiences by adding conversational pauses to Alexa’s speech when reading articles or blogs, it said.
Olsavsky called Q2 an “odd quarter,” due to uncertainty over what consumers will order and how much. Demand has been strong; questions surround the ability to fill orders “in a full way, not blocking or making it hard to find nonessential items, increasing marketing and everything else.” Revenue is a given, but cost structure, ability to get products and capacity for shipping and delivering are uncertain, he said.