Technology stocks continue to take a pounding during the COVID-19. However, Amazon (NASDAQ: AMZN) is bucking the recessionary trend. The E-commerce giant rocked the investing community as it posted U.S. $75.4 billion in revenue for Q1 of 2020. To put that into perspective, that equates to Amazon earning U.S. $33 million every hour for the past three months!
Amazon’s quarterly earnings caused a buying spree on Thursday. Ultimately, driving AMZN to a new all-time high of U.S. $2474. I guess the big question on everyone’s mind is how high Amazon can fly?
Today we will discuss why Amazon made headlines this week and whether they are worth the investment?
Why did Amazon create headlines this week?
1. Revenues are Up All Round
Despite the continued closure of distribution centres across the U.S. and Europe, Amazon posted some impressive sales numbers.
- Revenue for Q1 of 2020 was U.S. $75.4 billion – 26% rise YOY.
- Net sales rose to U.S. $46 billion for the Q1 2020 – up from U.S. $35 billion at Q1 2019.
- Quarterly revenue generated from Amazon Web Services (AWS) surpassed U.S. $10 billion for the first time in Q1 of 2020.
2. “If you’re a shareholder in Amazon, you may want to take a seat.”
Despite the revenue growth, Amazon posted a 29% YOY fall in profitability to U.S. $2.5 billion. According to company officials, there are more losses to come.
The company plans to spend U.S. $4 billion over the next three months on COVID related expenses. According to Jeff Bezos, “This includes investments in PPE, enhanced cleaning procedures, more effective social distancing measures, higher wages for hourly teams, and hundreds of millions to develop our Covid-19 testing capabilities.”
It will be interesting to see if this announcement hinders Amazon’s ability to grow its share price over the coming months.
3. Bezo Cements His Place on Top
After seeing a 30% rise in Amazon’s stock price since the beginning of the year, Jeff Bezo’s net worth has risen by U.S. $20 billion to U.S. $139.7 billion. A large portion of this can be attributed to Bezo capitalising on the dire state of the housing market. Over the past month alone, Bezo acquired three apartment complexes in New York City for U.S. $50 million. Also, the entrepreneur helped himself to a new U.S. $175 million mansion in Beverly Hills.
Is Amazon worth the investment?
Before I start, I am obliged to remind our viewers that this is not advice, only general commentary from my extensive research in this area.
Before the Coronavirus pandemic, Amazon continued to post remarkable financial results. The company posted a 20.5% increase in revenue in 2019 when compared to the prior year. Also, Amazon’s gross profit ratio was 26.7%. Amazon’s impressive gross profit was reflected in the outstanding EPS of 23.01.
Furthermore, Amazon reported a ludicrous P/E ratio of 107.52. This, in turn, reflects the market’s expectations that Amazon still has massive potential to grow future revenues. With its D/E ratio falling to 263%, this stock exposes investors to lower risk (when compared to other tech companies).
However, amidst all these impressive financials, Amazon saw a 0.2% fall in its net profitability ratio to 4.1%. This was mirrored by a 4.3% dip in its ROI ratio to 18.7%. Also Amazon’s expense ratio rose by 1.2% to 21.5%. Therefore, Amazon still holds areas of financial concern.
A Final Word
While Amazon continues to post impressive financials during the COVID-19, I would personally hold off from purchasing Amazon shares (opinion not advice). We are currently witnessing a false bull market, where markets continue to rise while economic performance continues to deteriorate. Hence why Amazon holds an astronomical P/E ratio.
I do see the price of Amazon shares falling as the economic fallout of the virus eventually penetrates the minds of investors. It’s a question of when not if.
Here is our free, uncomplicated, and extensive ASX portfolio
Here is our free, uncomplicated, and extensive breakdown of smart COVID-19 Strategies
If you enjoy our articles or are wanting to learn more, you can subscribe to us for free via email and get updates when we post new articles. From all of us at YIG, thank you for the support.
The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Sergeo Domtchenko, Associate of YIG.