Changing consumer habits due to lockdown are believed to have been a big factor in Amazon’s Q1 profits being a massive three times larger than last year.
Huge Profit Growth in Just One Year
In the first 3 months of 2020, before the first lockdowns for the pandemic, Amazon recorded a $2.5bn profit. Fast forward to the first 3 months of 2021, many long lockdowns later, and in the 3 months to 31 March 2021, Amazon has now recorded a $8.1bn profit. That is a staggering three times higher than only 12 months ago! This means that Q1 of 2021 is second only for sales ($108.5 billion) in the company’s history to Q4 of 2020 ($125.6 billion).
The main reasons are clear:
- Amazon’s leading e-commerce business with its massive distribution and delivery network proved to be the ideal way of shopping when consumers were confined to their homes under lockdown restrictions, high street shops were forced to close, and even supermarkets were restricted to essential items.
- With the leisure industry effectively shut down (pubs, clubs, cinemas, entertainment venues), Amazon was well-positioned to expand its streaming entertainment platforms (Prime) as consumers switched their leisure spending to home-entertainment.
- The closing of offices and other workplaces and the shift to remote working and the accelerated digital transformation of businesses-favoured cloud-based work and communications. This meant with Amazon owning the leading on-demand (public) cloud computing platforms and API provider (AWS), it was well placed to take advantage of a big increase in enterprise cloud migrations. In fact, the revenue growth rate of AWS was a massive 32 per cent which generated an eye-watering $13.5bn in revenue.
Analysts have noted that other reasons why Amazon has improved its performance this year compared to competitors like Walmart, Target, and eBay are that it focused on essentials at the start of the pandemic and has since increased staffing and fulfilment-centre square footage to ensure that it can cover more orders.
Amazon’s financial officer Brian Olsavsky has highlighted how Amazon’s business essentially grew by 50 percent in Q1 of 2021, and that the company’s annual revenue growth rate internationally prior to Covid, and post-Covid, had been tripling anyway.
What Does This Mean For Your Business?
As Amazon’s founder and CEO Jeff Bezos pointed out in the company’s earnings release, AWS offers a broad set of (cloud) tools and services to businesses, and many businesses have undergone a digital transformation and a migration to the cloud (many to AWS services) during the pandemic. Amazon’s e-commerce platform has also been beneficial to businesses using it to sell online during the pandemic, and Amazon’s ad business has also recorded huge growth. In the entertainment’s market, Prime video (which Amazon sees more as an adoption and retention driver for its Prime membership) has also seen huge growth during the pandemic, making it a serious challenger to the other streaming service competitors (e.g. Netflix, HBO Max, Disney Plus, Hulu, and more). In short, Amazon’s broad set of services, dominance in key sectors, capacity, and distribution have suited the market conditions created by the pandemic and this has been reflected in the huge Q1 profits. Just as it is competiton to many businesses (e-commerce), it is also a key supplier (e.g. public cloud), and this latest profit announcement confirms that Amazon’s power in many markets, globally, is still increasing.
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