Amazon.com's (NASDAQ:AMZN) recent second-quarter report was one for the record books. The e-commerce and cloud computing leader's results crushed the market's expectations and illustrated just how well-positioned the company was to thrive amid the conditions created by the coronavirus pandemic.

Amazon posted earnings per share of $10.30 on revenue of $88.9 billion, trouncing the average analyst estimate's target for per-share earnings of $1.46 on revenue of $81.56 billion. Sales were up 40% year over year in the quarter, driven by strong performance for online retail and cloud services.

Within the e-commerce category, momentum for Amazon's grocery delivery services was particularly noteworthy. Management outlined progress for the business during its second-quarter call, and momentum on the grocery front was astounding. 

A shopping cart outfitted with a mask next to three small boxes.

Image source: Getty Images.

Online grocery sales are soaring

Amazon's grocery delivery and pickup services saw elevated demand due to COVID-19, and the company's recent infrastructure investments helped expand the scope of those offerings. Grocery delivery capacity increased by more than 160% in the quarter, and the company tripled its total grocery pickup locations. The retail giant didn't break out specific revenue for its online grocery business, but it noted that sales from the category tripled year over year in the quarter. 

Here's chief financial officer Brian Olsavsky responding to an analyst question in the second-quarter conference call about how the coronavirus pandemic has accelerated the growth curve for e-commerce and grocery delivery in particular:

We're super encouraged by the fact that grocery delivery has picked up, and that's been accelerated versus what we would have thought. We certainly are glad to be there for our Prime members who are shopping more frequently and buying more.

We do know that there's reasons that their other options are limited. I mean there are always retail options out there, especially to go pick up in store, but less people want to go into stores perhaps now. So we're going to have to see what is maybe a step-up in the curve and getting to a point quicker versus what are some one-time sales and things like, hopefully, things like masks and gloves and cleaning supplies in the fullness of time become one-time purchases, but we'll see. 

The surge for grocery delivery might slow down as demand for some coronavirus-related items drops off and people feel more comfortable returning to stores, but the unprecedented conditions have brought new shoppers to Amazon's online service, and the company has huge room for growth in the category.

E-commerce accounted for just 2.6% of total U.S. retail food and beverage sales last year, according to Coresight Research. However, Coresight estimates that the overall category will expand roughly 40% this year and account for roughly 3.5% of total spending in the category -- good for a market size of nearly $38 billion.

Groceries in bags on a doorstep.

Image source: Getty Images.

Infrastructure investments are accelerating growth

Part of Amazon's big earnings beat in the quarter stemmed from significantly reduced expenses in categories including marketing and travel. Surging online retail demand and social distancing initiatives related to COVID-19 meant that the company had little need to spend on advertising or travel for employees, but the e-commerce giant did accelerate some operational investments -- and Olsavsky specifically highlighted grocery delivery as an area where investments and results were ahead of schedule. 

Amazon's quarterly report showed that net expenses for property and equipment in the second quarter climbed 151% year over year, reaching $6.62 billion in the period. Capital expenditures and finance leases in the quarter came in at $9.4 billion, up 65% year over year as the company focused on expanding fulfillment and logistics infrastructure for e-commerce operations.

Fulfillment network infrastructure square footage is expected to grow approximately 50% this year, up from a 15% increase in 2019. The expansion of the company's retail infrastructure this year is staggering, and it should facilitate continued growth for grocery delivery and pickup services.

Amazon's grocery business could be another game-changer

While the company isn't providing specific figures, online grocery sales likely account for a very small portion of Amazon's revenue, and delivery services are probably operating at a loss. Embracing near-term losses in order to build the infrastructure and customer base needed to drive long-term growth has been a core strategy in the company's playbook, and investors shouldn't discount Amazon's ability to disrupt the grocery industry in the same way that it has shaken up other areas of retail.

Expanding its online grocery delivery and pickup footprint will only add to the appeal of the company's Prime subscription platform and overall ecosystem, and the initiative is moving the company ever closer to being a one-stop shopping destination capable of meeting nearly all of the consumers' needs. 

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