Please ensure Javascript is enabled for purposes of website accessibility

Can Amazon's Next Quarter Be Its First $100 Billion Quarter?

By Parkev Tatevosian, CFA – Sep 16, 2020 at 8:15AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Hundreds of millions of people will be relying on Amazon to deliver, but can it handle the increase in orders?

The coronavirus pandemic is causing sales to surge at Amazon (AMZN 1.96%). Still, reaching $100 billion in sales, in a single quarter, is quite the stretch goal. Even the largest company in the U.S. by market cap, Apple, hasn't been able to achieve that milestone, having only hit a measly $91.8 billion at its highest mark, in its fiscal first quarter of 2020.

For Amazon, achieving $100 billion in revenue would not only give it bragging rights, but it would cement the importance of the service it was able to provide during the pandemic. It has been a remarkable accomplishment for the company to handle the substantial increase in orders, and it has been a lifeline to many consumers around the world. Let's take a closer look at the possibility of reaching $100 billion in sales this quarter. 

A $100 bill with a mask covering Benjamin franklin's face.

Amazon is getting close to a $100 billion quarter. Image source: Getty images.

Did Amazon prepare well enough to meet the surging demand? 

Let's start with what the company is telling investors it expects to achieve in sales for the quarter. In the press release accompanying its most recent financial results, Amazon informed investors that it is forecasting sales in the range of $87 billion and $93 billion in the current quarter. You might be thinking that for the company to reach $100 billion in sales, it would have to generate sales beyond even the top end of its forecast, and you would be right.

However, the coronavirus pandemic is causing significant uncertainties for businesses globally. The unprecedented nature of the pandemic makes it difficult to forecast revenue accurately. In fact, the forecast for Amazon's most recent quarter was for sales in the range of $75 billion to $81 billion, and the company blew past those expectations with sales of $89 billion for the quarter.

Moreover, Amazon has made significant investments to ensure it can continue to be the company that hundreds of millions of people can rely upon. In its second quarter of fiscal 2020, the company spent $4 billion on COVID-19 related expenses. And the company expects to spend another $2 billion this quarter. The spending should help get products to customers while keeping employees safe.

Fueling the increase in sales are essential items like groceries, which tripled year over year. Additionally, Prime members are ordering more often and adding more items to each order. Interestingly, the biggest challenge to achieving the $100 billion milestone this quarter may be the company's ability to fulfill demand. It's going to help that in its most recent quarter Amazon's headcount grew 34% from the prior year. That's 175,000 employees that it hired and trained to help fill the increase in demand.

Amazon is acutely aware of its increasing importance in society during the pandemic. In the second-quarter conference call, CFO Brian Olsavsky said, "We know that people are relying on online shopping more than ever during this unprecedented time, and we are working hard to add capacity to serve customers."

A group of packages left at a front door.

Amazon is delivering more packages during the pandemic. Image source: Getty images.

What this means for investors 

If Amazon reaches $100 billion in sales, what investors will rush to look at is what percentage of revenue came from Amazon's web services. That's because the segment is a profit engine for the company. In its most recent quarter, the segment made up only 12% of revenue while accounting for 58% of operating profits.

Furthermore, investors will want sales to continue to be driven by Prime member engagement. These are customers that are most likely to stick around after the pandemic has run its course, and fuel gains for this consumer goods stock for years to come. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Parkev Tatevosian owns shares of Apple. The Motley Fool owns shares of and recommends Amazon and Apple and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.