Holiday shopping, retail trends boost Amazon

Amazon photo stock

The retail sector is scrutinized every December to gauge the health of the economy. This holiday season is no different, even if most other aspects of life feel upended by the coronavirus pandemic.

How much people will spend is anyone’s guess, considering the extent of job losses and uncertainty caused by COVID-19.

One thing that seems more certain is the favorable outlook for Amazon, a company whose fortunes have grown considerably in 2020.

The company is expected to deliver a record-shattering fourth quarter when earnings are released early next year.

Instead of waiting, however, you can track Amazon’s performance in near real-time through an activity index that we derived using satellite radar imagery.

Ursa Space is regularly monitoring approximately 50 of the largest Amazon fulfillment centers across the United States.

Our satellite radar experts turn the imagery into a metric that has shown a 0.82 correlation with Amazon quarterly revenue figures since 2018.

This blog is an update to a previous post we wrote on the same topic earlier this year. 

For each fulfillment center, we’re monitoring the vehicle activity in lots similar to the one shown here in Windsor Locks, Connecticut:

Windsor Locks

The volume of vehicles in these lots indicates how busy a fulfillment center is. Capturing the level of fullness is possible using synthetic aperture radar (SAR), a satellite-borne sensor with all-weather, 24/7 capabilities. 

The graph below plots the activity index (a composite of 46 fulfillment centers) during the calendar year from 2017 to present. 

It’s important to view the index at the same time of year to adjust for seasonality. The index typically increases in Q4 followed by a decline in Q1. 

Amazon Index

The 2020 activity index displayed these seasonal trends, while staying above prior years almost every step of the way. 

The index is particularly useful as a leading indicator of Amazon’s reported revenue. The graph below plots the index and quarterly revenue since 2018. 

Revenue vs SAR

Amazon’s third quarter revenue—$96.15 billion—represented 8% quarter-on-quarter growth and 37% year-on-year growth.

The company forecast Q4 sales between $112 billion and $121 billion, which would top the figures from 2019 by 28% to 38%, a fitting coda to an unprecedented year.

A big reason for Amazon’s success has been the surge in popularity of online shopping amid a global pandemic. People working at Amazon warehouses around the world have come under strain to keep up with demand, which points to the health challenge presented by the coronavirus. 

Working in close quarters, the employees are vulnerable to the spread of the virus. Outbreaks pose serious safety issues that also would derail operations.

In an earnings call, Chief Financial Officer Brian Olsavsky said the company had spent more than $7.5 billion in COVID-related costs, such as personal protective equipment, cleaning and changes to allow for social distancing, and would dole out another $4 billion in the fourth quarter.

Still, it has been a very good year for Amazon shareholders. The stock topped $3,000 for the first time in early July, up from $1,898 at the start of the year, closing as high as $3,531 September 2. As of early December, the price was around $3,200.

Stock Price

What do you think? Can Amazon continue its hot-streak? Will 2021 look like 2020 even if the distribution of coronavirus vaccines is successful? Or does a return to normalcy represent a setback for online retailers?

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Geoffrey Craig