E-commerce giant Amazon (AMZN +0.53%) is diving deeper into its cost-cutting spree. On Wednesday, the company decided to pull the plug on Amazon Smile, the charitable donation program it started in 2013. The last contributions will wind their way through the Smile system on Feb. 20, and then it's time to play the end credits.
Some charities will miss the contributions that come with every Amazon purchase made through the smile.amazon.com site. Others will probably shrug and move on, barely missing the trickle of revenue generated from 0.5% of each qualifying purchase. Will this move make a significant difference for Amazon and its investors?
Minimal impact
First of all, it takes an extra step to send your Amazon orders through the Smile funnel. Predictably, most people don't bother to do this.
For example, let's look at data from fiscal year 2020 -- the latest period for which I found documentation of Amazon Smile's actual donations. The parent company's online retail operations generated $216 billion of sales that year. A 0.5% cut of that massive revenue flow amounts to $1.08 billion. But the AmazonSmile Foundation's Form 990 tax filing showed just $73.6 million in revenue that year.
In other words, roughly 0.03% of Amazon's total sales passed through the Smile filter in 2020. So the Smile program sounds generous at first blush, thanks to Amazon's ginormous scale, but the company never put its back into this effort. The resulting charitable contributions are reportedly hardly worth the paperwork and promotional work the charities have to put in.
Image source: Getty Images.
Minimal cost savings
All told, Amazon Smile has generated donations of $449 million in 10 years. That's commendable, but $40 million a year is just a rounding error on Amazon's income statement.
Critics of the program have lambasted Amazon for setting up a donation system that isn't active by default, gives donation-based tax credits to Amazon instead of the shopper, and requires charities to promote Amazon's shopping portal if they want people to send their Smile contributions to a specific cause. Again, it's not like a few million dollars of donation credits per year makes much of a difference to Amazon's tax bills. In the example year of 2020, Amazon sent $1.71 billion of cash to Uncle Sam and other income tax authorities. You could add back the Amazon Smile credits and you would barely notice the difference.
If this is a pure cost-cutting move, it's not a terribly efficient one. Apart from some accounting fees and bank charges, Amazon Smile didn't have significant expenses. From an accounting point of view, the end product was a teaspoon's worth of word-of-mouth promotion plus a forgettably small tax credit. Most Amazon shoppers won't miss it and Amazon promised to get involved with charities in other ways anyhow.
For example, Amazon's well-stocked warehouses and nationwide distribution system come in handy during natural disasters. The response to hurricane Ian in 2022 involved 360,000 bottles of water, a $1 million cash donation to the Florida Disaster Fund, and reserved parking space for 75 Red Cross trailers, among other things. The company has the resources to make a lasting impact this way, arguably more helpful than the some-assembly-required Amazon Smile program ever was.
So Amazon's financial statements will barely show this program going away. This sounds like a bigger deal than it is.
NASDAQ: AMZN
Key Data Points
Other ways to support charities through business links
And if you really want to generate charitable contributions by doing business with a company instead of sending checks in your own name, there are other options. For instance:
- Lemonade is the clearest example. The computer-driven insurance company is organized as a public benefit corporation, sending as much as 40% of its surplus profits to nonprofits. That's a pretty clear line connecting your insurance premiums to Lemonade's charitable giving.
- Darden Restaurants, the parent company of Olive Garden and LongHorn Steakhouse, doesn't throw away surplus food at the end of the day. Instead, ingredients and unserved meals are packaged and sent out to food banks and shelters around each restaurant.
- Walmart donates more than $1.3 billion per year in bite-size portions of $250 to $5,000 per recipient. Local charities near Walmart stores (and that's essentially everywhere) can apply for these grants up to 25 times yearly.
I'm just scratching the surface here. Lots of public companies provide active support to charitable organizations, partly for the tax credits and positive press coverage, but also to make the world just a little bit better. Amazon is changing its charitable strategy, but that's hardly the end of corporate giving.
