Amazon Forecasts $4 Billion in COVID-19 Costs Next Quarter

Amazon anticipates approximately $4 billion in expenses linked to COVID-19 in the upcoming quarter, a projection that serves as an indicator for businesses of all sizes as they navigate operational challenges and expense management during the pandemic.

Essentially, Amazon is preparing for COVID-19 to remain a significant factor through the year’s end, with anticipated costs exceeding those of the previous quarter.

During its third-quarter earnings discussion on Thursday, the company reported a total of $7.5 billion in COVID-19-related costs since the beginning of the outbreak earlier this year. Amazon had previously stated its COVID-19 costs were around $600 million in the first quarter and exceeded $4 billion in the second. Chief Financial Officer Brian Olsavsky informed analysts during the earnings call that the company’s COVID-19 expenses for the third quarter totaled approximately $2.5 billion. Although Amazon successfully reduced costs in the third quarter through improved efficiencies, projections indicate an increase for the next quarter.

Olsavsky explained that the primary driver of the cost increase is the expansion of the company’s operations. Amazon added 100,000 new employees during October.

COVID-19, alongside other economic uncertainties, holiday sales forecasts, and even weather conditions, is influencing the company’s outlook for operating income in the fourth quarter. Amazon’s guidance for fourth-quarter operating income ranges from $1 billion to $4.5 billion, compared to $3.9 billion during the same period last year. This forecast incorporates an estimated $4 billion in costs associated with COVID-19.

Notably, even after outlining a comprehensive list of potential uncertainties for the fourth quarter, Olsavsky emphasized that COVID-19 remains the most significant concern.

“There are numerous factors that typically impact Q4,” Olsavsky stated. “The fact that COVID is exceeding the impact of all those factors is creating considerable uncertainty regarding our revenue range.”

Olsavsky clarified that these costs stem from decreased productivity due to operational adjustments, as well as expenses for personal protective equipment and initial investments.

“The largest component of these costs is related to ongoing productivity challenges within our facilities, including adjustments to processes to enable social distancing and additional costs associated with launching new facilities. The substantial increase in new hires to meet strong customer demand also includes investments in PPE for employees and enhanced facility sanitation,” Olsavsky explained during Thursday’s earnings call.

Amazon announced on Thursday that it is continuing to expand its internal COVID-19 testing program, aiming for a capacity of 50,000 tests per day across 650 locations by November.