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Amazon reports double-digit revenue growth YOY amid COVID-19

Moody’s Vice President Senior Credit Officer Charlie O’Shea joins Yahoo Finance’s Julia La Roche to discuss Amazon's latest quarterly earnings results as the pandemic boosted online shopping.

Video Transcript

JULIA LA ROCHE: Another tech giant that we're following closely is Amazon. Shares of Amazon are trading up more than 4% right now, following its second quarter earnings results. And a lot of that has to do with the pandemic buying spree that we've seen, especially as everyone's remained locked down at home. We're joined now by Charlie O'Shea from Moody's. Charlie, thank you so much for joining us.

CHARLIE O'SHEA: Thanks for having me, Julia. Good to see you.

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JULIA LA ROCHE: I think you, like many people, were really blown away by the earnings report here. What was your reaction to it?

CHARLIE O'SHEA: You, pretty much, said it. It was way beyond what we thought. When the company tells you we're either going to lose $1.5 or make $1.5 billion and somewhere in the middle. And they pop up $5 billion plus, that's a little shocking. And it kind of crushes some models.

But when you dig into the numbers, everything makes sense. The company was very transparent about where the benefits were and where the potential risks are going forward with the volumes that they're seeing.

So when we were on the call last night, Brian Olsavsky was very, very cautious about the things they need to do in the back half of the year to keep up with this demand. And acknowledged that even they were shocked by how robust the demand was and how much volume they had.

JULIA LA ROCHE: Yeah, certainly. If you wouldn't mind, would you unpack some of those risks, some of the things that people need to be paying attention to?

CHARLIE O'SHEA: Yeah. On the delivery side was top of mind. They're not there with next day, nor should they be. They we're getting there at the beginning of the year, ahead of the pandemic. It's costing an awful lot of money. They've got to work out some of the kinks with respect to getting the product closer to the customer to make next day happen. And they were pretty far along in that process, then the pandemic hit, and everything got thrown out the window.

So they need to hire more people. They need more vehicles. They need to build more fulfillment centers and more flex warehouses. So there's a lot that has to happen here in order to keep up with the demand. Because they pulled forward, basically, a Q4 into Q2. And they're going to do Prime in Q4, along with holiday in Q4. That's going to create a lot of stress on the fulfillment network so they're really going to have to beef up the spend and beef up the capability in order to keep up with that.

JULIA LA ROCHE: Yeah, it's interesting. You were just referencing the demand-- it makes you wonder, how sticky do you think this will be? Is it just a one-time thing because people are at home? Or are we talking about new customers coming on who maybe haven't been as robust of Amazon shoppers in the past, and now they realize hey, I like this way of shopping. How do you think about that going forward?

CHARLIE O'SHEA: I think the essential retailers-- and Amazon is definitely in that group-- are all going to see benefits going forward. There are people shopping at Walmart that never shop there before. There are people shopping at BJs that never shopped before. Some of that will stick. Amazon has the ability to have a stickier relationship with its Prime members and with any consumer, specifically because you can join Prime and you get that ecosystem.

And one of the things that we've talked about a lot at Moody's over the years has been that Prime really isn't-- delivery is great. Free delivery is great. Discounted delivery is great. But anybody can do it. Walmart can do it. Target can do it. Best Buy can do it.

But not everybody and really, nobody else other than Apple can build that ecosystem. And that ecosystem-- they called it out specifically last night-- content was two times year over year-- the streaming volume was two times. That speaks to the quality of the content, and the fact that the Prime member really does focus on the content aspect of that relationship.

JULIA LA ROCHE: Charlie O'Shea, Moody's vice president, I thank you so much for breaking down all things Amazon for us.

CHARLIE O'SHEA: Thanks, Julia.