Investors’ penchant for prioritising growth over profit at Amazon.com will be put to the test today, when investors absorb the impact of second-quarter pandemic-related costs that could top $4 billion.
Still, some analysts question whether Amazon’s stock can keep climbing from its current $3,000 level.
Shares are up 25% since April 30, when Amazon warned that expenses for coronavirus testing and other safety and staffing measures could outpace surging revenue in the second quarter. At that time, the company forecast quarterly operating income of minus $1.5 billion to plus $1.5 billion. Amazon reported operating income of $3.1 billion in the year-earlier quarter.
“We recognise there’s a high amount of uncertainty on costs because of the outbreak, and therefore a higher chance of (Amazon) falling short” on operating income results, Jefferies analysts said in a note. Amazon has regularly beaten Wall Street’s quarterly operating income estimates by around 50%, the analysts said.
Amazon remains the go-to site for online shoppers, but challenges are mounting. Novel coronavirus infections are raging in the US, a market that accounts for about 70% of its retail business, and a $600 weekly pandemic unemployment payment could expire and crimp consumer’s spending.
Amazon increased investment after the pandemic-fuelled spike in online shopping caused disruptions ranging from unavailable merchandise to long wait times – sending shoppers into the arms of rivals Walmart and Target.
When Jefferies surveyed more than 500 consumers in late April, 69% of respondents said they were experiencing delays or out of stock issues on Amazon. Among them, 62% said they were buying more from other online sellers – primarily Walmart and Target. And, 28% of the shoppers who increased purchases from other sites said they planned to continue doing so after the health crisis ends.
Betting against Amazon has been risky in the past, said MorningStar consumer analyst RJ Hottovy. “We believe the market has moved back into a’growth-over-profitability’ mindset,” he explained.
Meanwhile, Walmart is starting a rival into Amazon’s $119 Prime subscription that includes perks like free delivery.
The team at Platform Executive hope you have enjoyed this news article. Initial reporting via our content partners at Thomson Reuters. Reporting by Lisa Baertlein and Akanksha Rana. Editing by Grant McCool.
To stay on top of the latest developments across the platform economy and gain access to our problem-solving tools and content sets, you can subscribe for just $19 per month.