• Retail Dive

Amazon posts a 'monster' Q4 with pandemic still driving demand

By Ben Unglesbee

Published Feb. 3, 2021

Dive Brief:

  • Amazon finished out 2020 on another blockbuster quarter, with its North American sales rising more than 40% year over year to $75.3 billion as shoppers turned to the e-commerce giant during a surge in COVID-19 and disruptions to holiday shipping.

  • The company said it had a record-breaking holiday season, which included 50% year-over-year sales growth for independent sellers on its Marketplace. Sales by independent sellers topped $4.8 billion between Black Friday and Cyber Monday, up 60% from 2019.

  • Ballistic sales growth in North America helped add more than $1 billion to domestic operating profit in Q4 2020 from last year, even as Amazon's North American operating expenses grew by nearly 40% to $72.4 billion.

Dive Insight:

Amazon chief and founder Jeff Bezos announced his plans to step out of the CEO role on a high note. That includes a record holiday season — helped along by moving Prime Day to October — and a year that pushed its North American sales up 38.4% to $236.3 billion. All that growth, however, wasn't cheap or pain free by any means.

MKM Partners Executive Director Rohit Kulkarni called the fourth period a "monster" quarter, pointing in part to the strength of Amazon's third-party platform, which accounted for 55% of units sold across Amazon's site. Kulkarni also called attention to the company's gross margins, which shrunk for the third quarter in a row, as well as record hiring and spending on COVID-19 measures.

The pandemic brought an explosion in customer demand for Amazon. In the early days of the pandemic, consumer purchases of essential household goods were at such heightened levels that the company temporarily stopped shipping non-essential items to focus on key products customers needed.

Over the year, Amazon built out its workforce and facilities to handle an era of increased demand. Amazon CFO Brian Olsavsky told analysts Tuesday that square footage in the company's fulfillment and logistics network grew about 50% year over year in 2020, according to a Seeking Alpha transcript.

That's an expensive proposition but appeared to pay off in the holiday season. GlobalData Managing Director Neil Saunders said in emailed comments of the holiday season, "Late in the period, we believe that Amazon gained some trade from other online specialists as consumers became a little concerned about receiving products in time before Christmas: Amazon's delivery service, a lot of which is now in-house, was seen as far more reliable than third-party shippers."

Saunders' firm's data also showed that Amazon "was used more than ever before for holiday gifting," especially among pandemic-wary shoppers.

While Amazon's banner 2020 might make for difficult comparisons, for now the company expects to hum along, potentially due to the continued surge of COVID-19. In its Q1 guidance for 2021, Amazon said it expects net sales to grow up to 40% from the same period last year.

The biggest news from Tuesday was the transition at the CEO level, with Bezos set to become executive chair of Amazon's board and Andy Jassy, currently chief of the company's AWS cloud services unit, to take over as CEO. Telsey Advisory Group analysts led by Joseph Feldman said of the incoming CEO, "In our view, Mr. Jassy is an inventive technology leader who should continue the push to innovate while being a good steward of the company culture."

In what, then, is one of his last quarterly comments as CEO on the company's results, Bezos described the work of his company as doing "crazy things together and then make them normal."

"If you do it right, a few years after a surprising invention, the new thing has become normal," Bezos said. "People yawn. That yawn is the greatest compliment an inventor can receive. When you look at our financial results, what you're actually seeing are the long-run cumulative results of invention. Right now I see Amazon at its most inventive ever, making it an optimal time for this transition."

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