Amazon expects $4 billion in COVID-related expenses this quarter — but its CFO says it's mostly coming from indirect costs like 'productivity drags'

  • Amazon said on Thursday that it expects to record about $4 billion in COVID-related costs this quarter.
  • Amazon CFO Brian Olsavsky said the $4 billion figure includes indirect costs like loss in productivity as well as more direct ones like buying protective gear for its employees.
  • Wall Street appears to have been spooked by the $4 billion estimated cost, as Amazon shares dropped 1% in after-hours even though it reported stellar third-quarter results.
  • Visit Business Insider's homepage for more stories.

Amazon said on Thursday that it expects another $4 billion in COVID-related expenses this quarter.

That's on top of the $7.5 billion it's already recorded as COVID-related costs this year, like buying face masks for its employees and building an in-house testing lab. 

But Amazon CFO Brian Olsavsky clarified during Thursday's earnings call that the $4 billion cost this quarter isn't entirely related to money spent on new initiatives — it also includes more arbitrary costs like "productivity drags" stemming from social distancing and longer breaks.

"There's productivity drags for things like new hire ramps, social distancing, extended break periods — things that we can quantify and say, this is a change in our process that has hurt productivity," Olsavsky said.

The increased cost in COVID-related expenses for this quarter appeared to have spooked some investors, as Amazon's stock dropped about 1% in after-hours trading, even though its third-quarter results exceeded Wall Street expectations. Amazon said its fourth-quarter operating profits will fall between $1.0 billion and $4.5 billion, below the $5.81 billion Street estimate, in part due to the COVID-related expenses.

Olsavsky said the majority of the COVID-related costs have been created due to Amazon's massive expansion this year. Amazon is on pace to grow its logistics footprint by 50% this year, and has increased its workforce by 50% in the third quarter to 1.13 million total employees, the first time crossing the 1 million mark.

Olsavsky added there are more direct costs involved as well, around "cleaning, supplies, and testing," in reference to the protective equipment and COVID testing for employees and the enhanced cleaning of warehouse facilities. 

Still, the bulk of its COVID-related costs are related to the loss in productivity, he said.

"The largest portion of these costs relate to continued productivity headwinds in our facilities, including process revisions to allow for social distancing and incremental costs to ramp up new facilities and the large influx of new employees hired to support strong customer demand," Olsavsky said.

By quantifying this, Olsavsky said Amazon is able to show how incremental these costs are, adding that the company expects them to be one-time expenses and not recur once the pandemic is over. He also noted that there's a lot of "uncertainty" in its guidance this quarter, due to the upcoming election and other issues related to the pandemic. 

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