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Amazon e-commerce sales soar amid COVID-19

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As COVID-19 shook the global economy, Amazon.com Inc.'s e-commerce revenue saw gains of 47.0% year over year for second quarter 2020. A spike in sales from Amazon's core e-commerce operations, which include online stores, third-party seller services and retail subscription services has fueled its revenue growth amid the COVID-19 pandemic. Aside from its e-commerce business lines, Amazon Web Services, digital advertising and physical store sales — primarily via the supermarket chain Whole Foods — are Amazon's other major business sectors.

Amazon's quarterly trends for global e-commerce revenues usually show a year ending with a strong fourth quarter that is only surpassed by the fourth quarter of the following year. Revenue generated from just e-commerce sales for the second quarter of 2020 of $70.11 billion already surpassed that of the fourth quarter of 2019 at $68.34 billion. All three e-commerce categories had large revenue gains, with online stores and third-party seller services each having an annual percentage change north of 46%. It is uncertain if this new trend will carry through the end of the year as shelter-in-place orders and physical shopping limitations relax.

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As regulations regarding shelter-in-place and social distancing came into effect during the first half of 2020, online stores and third-party sellers generated over 70% of Amazon's global revenue for the first six months. With an increasing amount of people participating in "panic shopping" in the wake of COVID-19, essential items quickly became scarce in brick-and-mortar stores. As a result, more people flocked to Amazon's online stores and third-party sellers to meet their needs while companies boosted their digital ad spending to target a larger number of prospective buyers. With e-commerce business booming, Amazon opened more fulfillment centers and increased the number of employees to meet consumer demands.

Amazon Web Services, or AWS, also did relatively well during the first half of 2020, making up 12.8% of the company's global revenue. Businesses worldwide moved their employees to work remotely, and many companies may have turned to AWS as a way to make this transition easier and to maintain work efficiency.

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Viewing quarterly revenue across business lines, third-party seller services had the highest annual percentage change of 52.1% in the second quarter of 2020. High demand for certain items amid the pandemic may have driven consumers to make more purchases from third-party sellers, especially when products were sold out or unavailable on Amazon's online stores.

Amazon saw an annual increase in its physical stores, mainly Whole Foods, during the first quarter of 2020, and then saw a sharp annual decline of 12.8% in the following quarter. These results were largely driven by people going to physical stores during the first quarter to stock up on essentials before shelter-in-place orders came into effect between March and April 2020. Once restrictions came into full effect at the beginning of the second quarter, more customers decided to make purchases online via other services, such as Whole Foods pick-up services and Prime Now delivery, which are not counted as part of physical store sales.

 

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Looking at each business line's percentage share of Amazon's total revenue, online stores and third-party sellers saw gains while all other sectors lost share percentages during the second quarter of 2020. Physical stores were hit the hardest, with a 2.6-percentage-point share loss compared to the second quarter of 2019, largely impacted by shelter-in-place orders and a rise in online purchasing. Online stores continue to yield to the most revenue among the different business sectors and saw the biggest jump in share with a 2.6 percentage point gain in the second quarter of 2020.

 

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Amazon has grown significantly from its start as an online bookstore in 1994. Struggling to make profits in its initial years, most investors believed more profitable book retailers at the time, such as Borders and Barnes & Noble, would overtake the small e-book store. After years of financial losses, Amazon reported its first positive operating income in the fourth quarter of 2001. Operating income in the following years remained low, however, as Amazon channeled most of its revenue into further developing its e-commerce business and expanding into higher-margin areas such as cloud services and digital advertising.

Operating income and revenues skyrocketed between 2010 and 2019, with total revenues eclipsing $280 billion by 2019 and operating income growing to $14.54 billion that same year.

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Operating income has also risen as net sales from its services gained momentum. Amazon began reporting net sales by products and services in 2011, with the latter comprising only 12.6% of total revenue. That gap had dwindled significantly by 2019 when products accounted for 57.2% of total sales versus 42.8% for services.

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