Amazon It is expected to incur COVID-related costs of $ 4 billion in the next quarter. This estimate is an important factor for other businesses, large and small, trying to control their operations and costs during the pandemic.
The bottom line: Amazon plans that COVID will remain an unwanted companion until the end of the year and that the costs will be higher than in the previous quarter.
The company announced in its third-quarter earnings call on Thursday that it had booked COVID-related costs of $ 7.5 billion since the disease took root earlier this year. Amazon previously said its COVID cost was about $ 600 million in the first quarter and more than $ 4 billion in the second quarter. The company's COVID cost was around $ 2.5 billion in the third quarter, CFO Brian Olsavsky told an analyst during a earnings call. While Amazon was able to reduce its costs in the third quarter due to efficiency gains, that number will increase for the next quarter.
Olsavsky said most of the rise in costs was due to expanding its business. Amazon hired 100,000 new employees in October.
COVID-19, as well as other uncertainties about the economy, Christmas sales, and even weather conditions weighed on the forecast for fourth quarter operating income. Amazon released a comprehensive forecast for operating income of between $ 1 billion and $ 4.5 billion in the fourth quarter, compared to $ 3.9 billion for the same period last year. These guidelines assume costs of approximately $ 4 billion associated with COVID-19.
Most tellingly, however, even after a long list of possible uncertainties, Olsavsky found in the fourth quarter that COVID still beats them all.
"So there are a number of problems that are common in the fourth quarter," said Olsavsky. "I think the fact that COVID is dwarfing all of these things is causing us great uncertainty about our top-line range."
According to Olsavsky, the costs were related to lost productivity caused by a change in functionality, as well as expenses related to personal protective equipment and other up-front costs.
“Most of this cost is due to the ongoing productivity headwinds in our facilities, including process revisions to allow for social distancing and additional costs for ramping up new facilities, and the large influx of new employees hired to support strong customer demand also includes Investing in PPE for employees and improving the cleaning of our facilities, ”said Olsavsky during the earnings call on Thursday.
Amazon announced on Thursday that its internal COVID-19 testing program, with a capacity of 50,000 tests per day at 650 locations, will continue to expand through November.