Amazon stock news isn’t as upbeat as you might expect
Amazon stock news has been bittersweet of late: although net sales are going through the roof, so are coronavirus-related costs.
With millions of people in lockdown, and non-essential shops shut worldwide, you may think that Amazon stock news was overwhelmingly positive right now. Indeed, in the first quarter of 2020, the eCommerce giant had net sales of £62.4bn ($76.4bn, €70bn). If you drill down into the numbers, this effectively means that Amazon’s customers spent £8,000 a second, day and night, for the first three months of 2020.
It’s an astounding performance, and in other Amazon stock market news, the company told investors on Wall Street that it expects demand to be even stronger in the second quarter covering April to June – the period when these lockdown restrictions fully began to take effect. Its own forecasts suggest net sales could be up to £67bn in Q2, a 28 per cent rise on 12 months ago.
Intriguingly though, Amazon stock price news hasn’t necessarily reacted the same way. On April 30, the online behemoth’s stock was trading at record highs of $2,475. But later that evening, when the Wall Street session had ended, its Q1 results were disclosed to investors: Amazon shares plunged 7.6 per cent to just $2,286. A company with tens of millions of products that offers next-day delivery is bound to experience a surge in demand during a pandemic, but Covid-19 has delivered some substantial complications for Amazon’s operation.
Amazon share news: Why did the stock fall?
You may be thinking that the dramatic Amazon stock price news might be one of investor greed – like the old adage of the woman with a prized ham who was crying because she didn’t have any bread. The truth is that the company’s first quarter results revealed that, as sales have gone through the roof, so have its costs.
At the end of April, Amazon revealed that coronavirus-related expenses stood at £495m – a figure that’s expected to rise to £3.3bn in the quarter we’re currently in.
The US-based eCommerce giant has even warned that it could post a loss of £1.24bn in Q2 – a milestone that hasn’t been seen in six years – although some analysts believe this is unlikely, with Amazon known for being on the cautious side when it comes to financial estimates.
If you’ve been following news on Amazon stock, or trying to buy things on Prime yourself, you’ll know that the website has been overwhelmed by the levels of demand. The company had to abandon its long-running selling point of being able to deliver the vast majority of items within 24 hours – sometimes even on the same day. For a time, Amazon also shifted its focus to filling its warehouses with essential goods only, turning away shipments that weren’t necessities in the current crisis. Online and in brick-and-mortar stores, consumers were finding it difficult to find anti-bacterial gel, toilet paper and bleach.
Then there was the challenge of having enough staff to process these orders, to package them and to deliver them to the doors of Prime customers.
Amazon share news was buoyed in mid-April when the company announced it was hiring an additional 75,000 workers worldwide – taking the total recruited during the pandemic to 175,000. That’s a costly exercise, not least because Amazon has also announced that it is temporarily increasing the pay of every employee by £1.65 an hour, at an estimated cost of £580m.
Amazon was keen to highlight that its hiring spree amounted to a great opportunity: “We know many people have been economically impacted as jobs in areas like hospitality, restaurants, and travel are lost or furloughed as part of this crisis," it said, "and we welcome anyone out of work to join us at Amazon until things return to normal and their past employer is able to bring them back.”
But much of that £3.3bn hit that Amazon is expecting to take in the current quarter revolves around taking precautionary steps to ensure workers are safe working in its warehouses as Covid-19 continues to spread. Masks, thermal cameras and other crucial supplies are being rolled out across its “fulfilment centres” and a jaw-dropping £800m is being put towards an in-house programme that can test employees for coronavirus.
One thing that has weighed heavily on Amazon share price news is the fact that the online retailer has long faced allegations of treating staff poorly – prompting fears that those who do go to work could be putting their lives in danger. In France, Amazon was forced to shut down its warehouses in the middle of April after the unions took the company to court, accusing it of failing to take adequate protections to protect employees as they packaged up non-essential items. A lengthy battle ensued, and these fulfilment centres remained shut until May 19.
Amazon stock news: Predictions
All this news on Amazon stock has resulted in breathless predictions about what lies ahead for one of the globe’s biggest companies. Indeed, there has even been speculation that Jeff Bezos could become the world’s first trillionaire by 2026, given how his net worth has risen by an average of 34 per cent every year since 2015. Some analysts are sceptical about this, as it assumes Amazon will continue its current pace of breakneck growth for another six years.
That said, there’s a high chance that the coronavirus pandemic will affect the way we shop for ever – partly because of how our habits will change, but also because we won’t have a choice.
Covid-19 has been calamitous for small brick-and-mortar businesses who were already struggling at the hands of Amazon. (So much so that the online giant took pity on British bookstores by making a donation of £250,000 – trying to stay anonymous.) We’ve already seen household names such as JCPenney file for bankruptcy, too. Thousands of store closures worldwide could mean that we’ll have to go online for the things we used to go to the mall for.
Attention is now turning to Amazon share price predictions. According to CNN Business, the stock is an overwhelming buy, with 45 analysts offering a median prediction that the stock will rise 12 per cent from current levels to hit $2,700 in the next 12 months. High-end estimates indicate a rise of 24.5 per cent to $3,000, while low-end estimates predict a fall of 23.6 per cent to $1,840.
Goldman Sachs is bullish, too. It believes that the stock could hit $2,900 – and claims that the market has been underestimating its long-term value. “The increase in demand the company's retail, Amazon Web Services, and ads business is seeing and Amazon's ability to meet the challenges of this demand, will, we believe, serve to steepen the curve of its long term growth rate, drive incremental profitability, and further deepen the competitive moat around all of its business,” its analysts said in a recent note.
Others believe the opposite is going to be true in the short term. Sure, consumers may be ordering in their droves right now, but this might change as lockdowns ease – and a recession means that consumer spending dries up entirely.
Scott Mushkin, an analyst for R5 Capital, has slashed his Amazon price target by more than $400 – taking just below $2,000. In a note, he explained: “Our research continues to point to a bigger and longer lasting impact of Covid-19 on the overall economic climate.
“It is important to note that our forecast still calls for growth, but not at the heady levels prior to Covid-19 and the resulting economic slowdown. It is also important to note that we still view Amazon as well positioned to gain share over time.”
We’ll find out whether Amazon is past its Prime or continues to deliver in the coming months, and the release of its Q2 results will be nothing short of crucial.
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