Introduction
Amazon Inc. is a multinational company headquartered in Seattle, Washington. The company was established in 1994 as a small online book store before expanding into a global technological giant. In 2018, Amazon represented an estimated 49% of e-commerce in the U.S. and 5% of the sales (Lunden, 2018). Today, the company sells nearly everything, including electronics, video games, apparel, software, food, furniture, toys, and jewelry. Since Amazon’s first IPO in 1997, the company’s stock price has grown by over 8,000%. Historically, Amazon Inc.’s sales have proved seasonal in that the sales increase in the second, third and fourth quarters with the highest sales in the fourth quarter (Amazon, 2020). As of December 2020, Amazon had 1,298,000 full-time and part-time employees. In 2020, Amazon’s net sales increased from $280,522 to $ 386,064 million representing 38% growth despite the effects of Covid-19 on the economy.
The impact of Covid-19 on the U.S. economy was first felt in February 2020. Before February 2020, the U.S. economy recorded economic expansion for 128 consecutive months coupled with a declining inflation rate (Ihrig et al., 2020). The unemployment rate lowered significantly within the period to 3.5%, with employees’ wages increasing gradually (Ihrig et al., 2020). The effects of the pandemic included increasing the unemployment rate to 14.7% in April and 13.3% in May of 2020 (Ihrig et al., 2020). Similarly, the inflation rate increased from 1.5% to 2.3% between February 2020 and March 2021 (Kliesen, 2021). The increase in the unemployment and inflation rate led to shifts in household spending. According to the U.S. Census Bureau (2020), household spending declined by 8.7% between February and 2020, representing the most significant decline in household spending between two months.
Delegate your assignment to our experts and they will do the rest.
Although extensive research has been conducted in evaluating the economic impact of Covid-19, there is limited research on the effects of Covid-19 on specific companies. The research paper seeks to assess the implications of the Covid-19 on the quarterly sales of Amazon Inc. The intention is to compare the quarterly Amazon sales before Covid-19, the year 2019, against the quarterly sales during the Covid-19, the year 2020.
Objectives
To evaluate the shifts in Amazon’s sales, expenses, and net income due to the effects of Covid-19.
To link specific effects of the Covid-19 to the company’s financial performance
Research question
What was the impact of the Covid-19 pandemic on Amazon Inc.’s sales, operating expenses, and income?
Hypothesis
The null hypothesis,
: Covid-19 pandemic had no impact on Amazon Inc.’s quarterly sales, operating expenses, and net income
The alternative hypothesis,
: Covid-19 had a significant impact on Amazon Inc.’s quarterly sales, operating expenses, and net income
Literature Review
The break out of the Covid-19 pandemic at the beginning of 2020 culminated in unprecedented public and economic crises in the U.S. and the world. According to the Johns Hopkins University of Medicine (2021), the U.S. reported 33,391,107 Covid-19 cases and 598,332 deaths in 503 days since the breakout on 1/22/2020. On the economic front, the Covid-19 pandemic created shortages in demand and supply of goods and services due to a shift of household spending, unemployment rate, and closure of businesses. The effect was especially felt in March 2020 due to the social distancing policy aimed at lowering infection rates (Ihrig et al., 2020). The policies led to the closure of businesses in hospitality, manufacturing, transport, tourism, education, and aviation. According to Bauer et al. (2020), the closure of the various economic sectors led to a loss of 20.5 million jobs in April 2020. High unemployment rates translate into lower disposable income among consumers.
Other than the increase in the unemployment rate, the response to Covid-19 led to a drastic decline in the GDP. The U.S. current dollar GDP declined by an estimated 3.4%, equivalent to $186.3 billion in the first quarter and 34.3% or $2.15 trillion in the second quarter (U.S. Bureau of Economic Analysis, 2021). Similarly, the real GDP declined by 5% in the first quarter and 32.9% in the second quarter of 2020 (U.S. Bureau of Economic Analysis, 2021). The perception that the Covid-19 would have severe effects on the economy created fear among consumers causing them to prefer holding cash or liquid assets by cutting on expenditure and selling assets such as stocks and bonds in the financial market (Bauer et al., 2020). To save the financial market, the U.S. government expanded the purchase of securities by $ 2 trillion (Ihrig et al., 2020). Increase purchase of securities by the government enhance the demand for the securities as fewer investors are willing to purchase and therefore avoid a collapse of the financial market due to the excess supply.
Lockdowns and travel bans triggered an increase in e-commerce. According to UNCTAD (2021), lockdowns and increased precautions against Covid-19 caused more businesses to transform into digital marketing and triggered more consumers to purchase goods and services from online platforms. Global e-commerce share increased from 14% in 2019 to 17% in 2020 (UNCTAD, 2021). The resultant shifts in the e-commerce business posed both opportunities and challenges for Amazon Inc. in that increased demand for e-commerce translates to more sales while the transformation of more business into online stores leads to increased competition. According to Amazon (2020), the demand for goods and services increase in 2020 but exposed a bigger problem of bottlenecks in the supply chain, transport, and logistics. As sales increased, Amazon Inc. experienced challenges in meeting the standard delivery time of between one and two days.
In the meantime, Amazon also faced significant challenges in ensuring the safety of employees. To overcome the challenges, Amazon chose to invest more in the supply chain, transport, and logistics to expedite product and service delivery. Also, the company engaged more third-party sellers and suppliers. By the end of the 2020 financial year, Amazon Inc. had employed 400,000 part-time and full-time employees to enhance consumer fulfillment (Amazon, 2020). At the same time, the company needed to invest in employee and customers’ safety through expanding space to facilitate social distancing, spraying disinfectants, purchasing protective gear, and installing temperature checks. In the first and second quarter, slowed delivery led to an increase in canceled orders and late orders hence forcing consumers to shift to competitors such as Walmart Inc. The Covid-19 related opportunities and problems faced by Amazon Inc. in the U.S. are similar across the globe and remain relatively unexplored.
Analysis
Table 1
Amazon’s Key Quarterly Income Statement Metrics for 2019 and 2020 Retrieved
https://ir.aboutamazon.com/quarterly-results/default.aspx
| Year | Date quarter ended | Net product sales | Operating expenses | Operating income | Net Income | Basic earnings per share |
|
2019 |
31-Mar |
$ 59,700 | $ 55,280 | $ 4,420 | $ 3,561 |
7.24 |
|
30-Jun |
$ 63,404 | $ 60,320 | $ 3,084 | $ 2,625 |
5.32 |
|
|
30-Sep |
$ 69,981 | $ 66,824 | $ 3,157 | $ 2,134 |
4.31 |
|
|
31-Dec |
$ 87,437 | $ 83,558 | $ 3,879 | $ 3,268 |
6.58 |
|
| Mean | $ 70,131 | $ 66,496 | $ 3,635 | $ 2,897 | $ 6 | |
| Standard Deviation | $ 12,296 | $ 12,317 | $ 635 | $ 642 | $ 1 | |
|
2020 |
31-Mar |
$ 75,452 | $ 71,463 | $ 3,989 | $ 2,535 |
5.09 |
|
30-Jun |
$ 88,912 | $ 83,069 | $ 5,843 | $ 5,243 |
10.5 |
|
|
30-Sep |
$ 96,145 | $ 89,951 | $ 6,194 | $ 6,331 |
12.63 |
|
|
31-Dec |
$ 125,555 | $ 118,682 | $ 6,873 | $ 7,222 |
14.38 |
|
| Mean | $ 96,516 | $ 90,791 | $ 5,725 | $ 5,333 | $ 11 | |
| Standard Deviation | $ 21,173.21 | $ 20,098.21 | $ 1,233.62 | $ 2,033.16 | $ 4.03 |
The research wishes to compare the quarterly financial performance of 2019 and 2020. The focus will be on the net product sales, operating expenses, and net income. The 2019 net sales represent the demand for Amazon’s products and services before the break out of the Covid-19 pandemic, while the 2020 sales represent the demand during the Covid-19 pandemic. Following the break out of Covid-19 and the increase in online purchases due to government guidelines of lockdown and social distancing, Amazon’s sales were expected to increase significantly. However, the level of growth depended on competitiveness, ability to overcome the supply chain challenges and ensure customer and employees’ safety. The data depicts the seasonality of the company’s revenue as sales increased from the first to the fourth quarter both before and after Covid-19.
The operating expenses were expected to increase in 2020 owing to the increase in costs such as improvement of supply chain and logistics systems, ensuring the safety of customers and employees through social distancing, disinfecting premises, and purchase of protective gear. Like the increase in net product sales, the operating expenses increased from the first to the last quarter both before and after the pandemic. The mean estimates the average quarterly sales, operating expenses, operating income, basic earnings per share, and net income for 2019 and 2020. The average sales, operating expenses, net income, operating income, and basic earnings per share increased significantly in 2020. The standard deviation also increased significantly, indicating higher variability in sales, operating expenses, operating income, net income, and basic earnings per share in 2020.
Figure 1
Comparison of Key Income Statement Metrics before and During the Pandemic
The histogram shows the key income statement metrics for the different quarters in 2019 and 2020. The net product sales and operating expenses increased significantly in 2020 relative to 2019. The increase in operating expenses was caused by the investment required to manage the effects of Covid-19, including recruitment of more staff, improvement of the supply chain, transport and logistics, and implementing safety measures.
Figure 2
Trends for Amazon’s Net Product Sales in 2019 and 2020
The quarterly sales followed a similar trend for both 2019 and 2020. The increase was most significant in last quarter and least significant in the first quarter. The higher growth in the third and fourth quarters suggests that the measures applied in the first quarter were effective in encouraging more sales. The investment overcame the challenges in the supply chain, transport and logistics, employees’ and consumers’ safety, and increase competition.
Figure 3
Trends for Amazon’s Net Product Sales in 2019 and 2020
The operating expenses assumed trends similar to the net product sales for both years. The increase was most significant in last quarter and least significant in the first quarter. The higher growth in the third and fourth quarters suggests that Amazon Inc. required more resources to sustain the investments initiated to overcome Covid-19 challenges such as disruption of the supply chain and logistics, recruiting more employees to deal with growing demand, and implementing safety measures for employees and consumers.
Figure 4
Trends for Amazon’s Net Product Sales in 2019 and 2020
The net income for the first quarter of 2020 declined below the first quarter of the year 2019. The net income, however, improved significantly in the second, third, and fourth quarters. The lower net income in the first quarter of 2020 represents the higher operating costs relative to the net product sales. The Covid-19 pandemic was first reported in February 2020, causing shifts in the business environment due to social distancing measures, closing some businesses, and disrupting the supply chain due to the travel ban introduced at the beginning of March. According to Amazon (2020), the demand for online products increased in March, exposing bottlenecks in the supply chain, transport, and logistics and inefficiencies in delivery. The federal regulations implemented to combat Covid-19 also required investment in employees’ and consumers’ safety, hence a drop in net income. While the 2019 net income assumed a declining trend in the second and third quarters, the net income increased significantly in the second, third, and fourth quarters of 2020. We, therefore, conclude that Covid-19 had a significant impact on Amazon Inc.’s quarterly sales, operating expenses, and net income
Conclusion
The demand for Amazon Inc. products and services increased despite the effects of Covid-19 on the economy. Examples of Covi-19 results expected to drive down include rising unemployment rates, crumbling financial market, growing inflation, and declining household spending. The closure of physical stores and precaution among consumers contributed to an increase in online purchases in favor of Amazon’s business, which accounts for 5% of the total sales in the U.S. and 49% of the e-commerce in the U.S. (Lunden, 2018). However, the increase in sales was accompanied by a rise in the operating costs required to restructure the company’s operations to reflect the federal Covid-19 protocols. Amazon also faced significant challenges in the supply chain, transport, and logistics leading to increased delivery time beyond the normal one to two days.
The operating expenses increased most significantly in the third and fourth quarter. The increase suggests that Amazon Inc.’s incurred more costs in sustaining the investments initiated to combat Covid-19 challenges such as disruption of the supply chain and logistics, recruitment of 400,000 new part and full-time employees, and implementing safety measures for employees and consumers such as social distancing, disinfecting premises and purchase of protective gear (Amazon, 2020). The net income for the first quarter of 2020 declined below the first quarter of 2019 due to the higher costs of the Covid-19 response strategy required in February and March 2020 before improving significantly in the second, third, and fourth quarters. The increase in net income in the second, third, and fourth quarters of 2020 suggests the effectiveness of the investments made in the first quarter to enhance competitiveness and efficiency in delivering products and services. Despite the challenges of Covid-19, Amazon Inc.’s quarterly sales and net income improved significantly during the pandemic after significant interventions to strengthen competitiveness and customer service.
References
Amazon. (2020). Form 10-K . https://ir.aboutamazon.com/quarterly-results/default.aspx
Amazon. (2021). Quarterly results . Amazon.com, Inc. - Overview. https://ir.aboutamazon.com/quarterly-results/default.aspx
Bauer, L., Broady, K. E., Edelberg, W., & O’Donnell, J. (2020, September 18). Ten facts about COVID-19 and the U.S. economy . Brookings. https://www.brookings.edu/research/ten-facts-about-covid-19-and-the-u-s-economy/
FOMC. (2021, March 17). FOMC projections materials, accessible version . Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20210317.htm
Ihrig, J., Weinbach, G. C., & Wolla, S. A. (2020, September). COVID-19’s effects on the economy and the Fed’s response . Economic Research - St. Louis Fed. https://research.stlouisfed.org/publications/page1-econ/2020/08/10/covid-19s-effects-on-the-economy-and-the-feds-response
Johns Hopkins University of Medicine. (2021). New cases of COVID-19 in world countries . Johns Hopkins Coronavirus Resource Center. https://coronavirus.jhu.edu/data/new-cases
Kliesen, K. L. (2021, May 19). Two percent inflation over the next year: Should you take the over or the under? Economic Research - St. Louis Fed. https://research.stlouisfed.org/publications/economic-synopses/2021/05/19/two-percent-inflation-over-the-next-year-should-you-take-the-over-or-the-under
Lunden, I. (2018, July 13). Amazon’s share of the U.S. e-commerce market is No. 49% or 5% of all retail spend – TechCrunch . TechCrunch. https://techcrunch.com/2018/07/13/amazons-share-of-the-us-e-commerce-market-is-now-49-or-5-of-all-retail-spend/
U.S. Bureau of Economic Analysis. (2021). Gross domestic product, 2nd quarter 2020 (Advance estimate), and annual update . U.S. Bureau of Economic Analysis (BEA). https://www.bea.gov/news/2020/gross-domestic-product-2nd-quarter-2020-advance-estimate-and-annual-update
UNCTAD. (2021, April 1). How COVID-19 triggered the digital and e-Commerce turning point . https://unctad.org/news/how-covid-19-triggered-digital-and-e-commerce-turning-point
U.S. Census Bureau. (2020). Measuring household experiences during the coronavirus pandemic . Census.gov. https://www.census.gov/data/experimental-data-products/household-pulse-survey.html
