Amazon Stock Is Making the Case for Death Star Status
Amazon.com (NASDAQ: AMZN) has more than earned the nickname the “Death Star” on Wall Street as its stock has hit all-time highs during the COVID-19 pandemic. Although the stock market has been slow to recover from the crisis, Amazon has not wasted any time in expanding its delivery business, while Amazon Web Services (AWS) has grabbed even more market share.
Analysts have likened Amazon to the Death Star because of its ability to jump into other industries and destroy the competition. Over the years Amazon has acquired Whole Foods, Twitch, and many more businesses, adding to its arsenal.
The Dow Jones industrial average and S&P 500 are still at a loss year to date, while Amazon shares are up over 28% in this time. It’s easy to see why Amazon has such a broad appeal, not just for its delivery service, but for its stock as well.
Amazon’s most recent earnings report only solidified its position as top dog. However, Jeff Bezos’s commentary took an interesting turn from the usual.
Amazon released its first-quarter financial results just a couple of weeks ago. Even though the bottom line missed by a lot, the growth rate in revenue was enough to counterbalance this.
The e-commerce empire said that it had $5.01 in earnings per share (EPS) and $75.5 billion in revenue, compared with consensus estimates that called for $6.25 in EPS and $73.6 billion in revenue. In the same period of last year, Amazon reported $7.09 in EPS and $59.70 billion in revenue.
At the same time, AWS revenues increased 32.8% to $10.22 billion, up from $7.70 billion in the same period of last year, with operating income of $3.08 billion.
As for guidance, the company expects to see net sales in the range of $75 billion to $81 billion, and operating income ranging from a loss of $1.5 billion to a profit of $1.5 billion in the second quarter. The consensus estimates call for $5.88 in EPS on $77.99 billion in revenue for the quarter.
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One job of the executive team of any company is to allocate resources in line with the company’s overall goal. The best chief executive officers do this by driving growth and innovation for a company within its industry — or in this case, across multiple industries.
Amazon has been absolutely destroying the competition. Founder and CEO Jeff Bezos has made a name for himself as one of the richest people on the planet, and this has almost entirely come from his success at Amazon. His ability to grow AWS and revenues over the years — even if the bottom line has suffered — has been an incredible story so far.
Bezos recently commented on earnings and the company’s position on dealing with the coronavirus. Overall, online shopping, AWS, Prime Video and Fire TV have proven to be adaptable and durable. Bezos noted that “the service we provide has never been more critical, and the people doing the frontline work — our employees and all the contractors throughout our supply chain — are counting on us to keep them safe as they do that work.”
While Amazon is dominating across multiple industries, its founder is taking a more humanitarian approach.
This may have come as a surprise to long-time observers of Bezos, who said: “If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small. Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances.” Instead, Amazon is taking a very different tack.
The company expects to spend the entirety of that $4 billion, and “perhaps a bit more,” on COVID-related expenses and getting products to customers. A chunk of this cash will go to keeping employees safe as well.
Sticking with the humanitarian approach, Bezos added: “There is a lot of uncertainty in the world right now, and the best investment we can make is in the safety and well-being of our hundreds of thousands of employees. I’m confident that our long-term oriented shareowners will understand and embrace our approach, and that in fact they would expect no less.”
It’s worth pointing out that shareholders don’t have much of a choice in the matter as Bezos has a controlling stake in Amazon and is the chairman of the board.
This second quote is very unlike a company that is considered the Death Star. However, it has been argued that as a result of this pandemic, CEO commentary going forward will tend towards a more moralistic or value-oriented message. If anything, this will be a different war to be fought among companies, and Amazon has staked its claim early.