Amazon Becomes Perfect Pandemic Company

Services

Published: July 21, 2020 6:37 am

Last Updated: July 21, 2020 6:45 am

Amazon.com Inc. (NASDAQ: AMZN) has delayed its Prime Day, a two-day period when it offers a huge number of deals to its Prime subscribers, which number over 100 million. Sales from the event represent a large amount of revenue for the quarter. The postponement of Prime Day did not prevent a trading day on which its shares skyrocketed, as investors realized, once again, that Amazon is a company that has benefited tremendously from the pandemic.

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Amazon’s Stock Rises Sharply

So far this year, Amazon’s stock is up 73%, while the Nasdaq is 17% higher. Big tech rivals have not done as well. Apple Inc.’s (NASDAQ: AAPL) stock is up 34%, and Alphabet Inc. (NASDAQ: GOOGL) shares have risen 20%. Each has an Achilles’ heel. For Apple, it is the sale of hardware. In the case of Alphabet, it is a drop in ad sales brought on by a slower economy.

Amazon’s businesses benefit from the shuttering of much of the economy. People order more goods online as they stay home. Amazon’s Prime service offers streaming video. Its cloud service continues to gain as more corporations move their storage to remote servers.

Each Amazon Piece Has Its Place as Economy Softens

Amazon made money in the first quarter of the year, but CEO Jeff Bezos said he plans heavy investment in the second quarter:

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, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe. This includes investments in personal protective equipment, enhanced cleaning of our facilities, less efficient process paths that better allow for effective social distancing, higher wages for hourly teams, and hundreds of millions to develop our own COVID-19 testing capabilities.

Bezos often has toppled the expectations of investors as he repeatedly spends his profits on new initiatives. Yet, when he takes these risks, the market expects them to pay off. In the first quarter, they did. Revenue rose 26% year over year to $75.5 billion. At its current run rate, Amazon will have revenue of $350 billion this year. That will move its closer to the largest corporation by revenue in America. Walmart Inc. (NYSE: WMT) has revenue of $523 billion.

Amazon Web Services

Most people see Amazon as only an online retailer. Its Amazon Web Services (AWS) is the largest cloud computing operation in America. Companies continue to move their data from their own services to those located remotely. The trend has pushed AWS higher. And it is Amazon’s most profitable business. In the first quarter, AWS revenue hit $10.2 billion, up from $7.7 billion in the year before. Operating income rose to $3.1 billion from $2.2 billion.

There is no reason that the spread of COVID-19 will slow the plans of companies to store data remotely.