Discover how activists twist the truth about corporate profits and worker pay, and why it's time to uncover the real story behind these claims.
The year 2020 has been interesting. Among the topics that will be marked in future history books is the COVID-19 pandemic that started in Wuhan, China, spread across the globe, and strangled economies. As the American economy contracted, "non-essential" employees bore the brunt of the recession by shifting their assignments off-site or losing their jobs entirely. In contrast, "essential" employees worked extra hours away from home.
There was a general sense among blue-collar workers that their white-collar employers were not doing enough to keep them safe or provide adequate compensation. In the early months, employees from various large corporations began protesting their employers' business and pay practices.
The two pictures below tell two different stories. On the left, we see an individual holding up a sign stat states: "Amazon has made $74 billion during COVID-19 while we risk our lives." The sense among employees who heard of these massive profits was that it was proper to question why they had not received a more significant stake in those earnings.
However, this is ignorant at best and intentionally deceptive at worst because it misrepresents Amazon's financial situation. Many a dreamy-eyed 20-year-old college student or leftist agitator has seen Revenue numbers and thought of all the "good" that the "evil" corporation could do if it weren't so "greedy."
Now, WHY is the picture to the left deceptive, intentional, or otherwise? Because there is a BIG difference between Revenue and Earnings. Amazon didn't make $74B in Q1 2020. They didn't even earn close to it.
What is Revenue? Revenue is the money a company brings in from operations (i.e., the money brought in from the products and services they sell). For example, Amazon's Q1 2020 Revenue was $75.452 Billion.
Let's say you have a lemonade stand. When you sell 10 cups of lemonade at $1 per cup, your Revenue is $10, but you didn't "make" $10 on your lemonade sales. You incurred costs. What you "made" was the Revenue minus any business costs. These costs are called Net Income or Earnings.
You may have paid $2 for lemons, $2 for sugar, $1 for water, $2 for a sign, etc., for a total of $7, and that is the cost of doing business. When you subtract your $7 "Cost of Revenue" from your $10 Revenue, you're left with a Net Income of $3. Therefore, you have "made" $3 on a $7 investment. Amazon's Net Income for Q1 2020 was $2.535 billion.
Net Income = Revenue - Cost of Revenue
Net Income = $10 (Lemonade Sales) - $7 (lemons, sugar, sign, water)
Net Income = $3
That is, Amazon's Net Income of $2.535 billion, which they truly "made," was only 3.36% of their total $75.452 billion. In all of 2019, Amazon "made" $11.59 billion.
Updated on 4/28/2023 with Grammarly recommendations.
Note: This is very simplified. An examination of Amazon's SEC filings will show, in addition to the Cost of Goods Sold (COGS), other expenses such as taxes, depreciation, Selling, General, and Administrative (SGA) costs, etc.. This was not written for financial professionals but for the general, non-financial, population.
Navy veteran, MBA (University of La Verne), federal VA employee, and three-term American Legion Post Commander. Writing about business, psychology, strategy, and privacy since 2020.
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