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Amazon (NASDAQ: AMZN) Stocks have soared to all-time highs during the coronavirus pandemic.
The e-commerce giant, responsible for about half of online sales in the US. In the past few weeks, the US has been called by Americans and people around the world to increase the delivery of essential items such as food, cleaning supplies, and medications during their stay. Home orders are in place to prevent the spread of the coronavirus.
Amazon has seen unprecedented demand during the outbreak, and has responded by hiring an additional 175,000 fulfillment and delivery workers. Chief Executive Officer Jeff Bezos spent much of his recent letter to shareholders discussing the challenges and changes to the company caused by the pandemic, and in the results release he said it was “the most difficult time we have faced. ”
Although sales increased in the quarter, increasing 26% to $ 75.5 billion, operating income fell from $ 4.4 billion to $ 4 billion due to additional investments, including higher wages, to accommodate the increased demand. The company also said it would spend $ 4 billion on incremental costs related to COVID-19 in the current quarter, essentially eliminating all $ 4 billion in operating profit that it would otherwise have expected.
Image source: Amazon.
Among the initiatives and changes the company has made are:
- Acquisition of 100 million masks, 1,000 thermal cameras and 31,000 thermometers to prevent the spread of the coronavirus in its Whole Foods stores and stores.
- Create a laboratory to develop incremental testing capabilities so the company can evaluate its own front-line employees. The experiment will cost approximately $ 300 million, but the company believes it is worth a try even if it is not successful in the relevant time frame.
- It hired 175,000 workers.
- He increased wages by $ 2 an hour until May 16 and began paying double wages for overtime pay, a 1.5-hour increase, which will cost $ 700 million.
- He made customer-oriented changes, including prioritizing essential orders, fighting price increases at his site, and expanding grocery delivery capacity.
A classic Amazon move
When the company started, Amazon CEO Jeff Bezos told investors that the company would invest in the long term, and with his decision to spend $ 4 billion in just three months, the company is applying this philosophy once again. Bezos has been willing to sacrifice short-term earnings for long-term earnings again and again, whether it’s with lower customer prices, faster turnaround times, or the benefits of his Prime loyalty program, knowing that the Amazon’s reputation is your most valuable asset and also your greatest potential risk.
In the COVID-19 era, that risk could manifest itself as an outbreak at one of its warehouses, which could lead to employee protests, negative customer reactions, and negative press. The company is already a lightning rod in politics and its work practices have come under scrutiny several times before. Taking additional steps to ensure the safety of your employees is a smart move, as it will only improve relationships with your key stakeholders and could even make the company an example of corporate responsibility during the pandemic.
Unlike most of its physical competition, Amazon is fortunate not to have suffered significantly from store closings or other similar challenges, and is in a unique position that it can spend $ 4 billion on coronavirus prevention, probably more than any other company will. Rather than save the windfall from your biggest sales, Amazon is choosing to eliminate the risk of queuing involved in the pandemic, or the risk that an unlikely event will have huge consequences. That helps the company’s already strong defensive positioning and increases its competitive advantages. Amazon, an efficiency-obsessed company, even said it was taking steps to be less efficient in certain areas to prioritize security measures like social distancing. By doing so, you are absorbing short-term costs to protect yourself against a possible catastrophe.
Amazon shares sold after hours on Thursday as the company lost first-quarter earnings expectations with a drop in earnings per share from $ 7.09 to $ 5.01, and its balance guide for the second quarter. It was a surprise. However, the company’s coronavirus-related moves will only strengthen its competitive advantages, eliminate risks, and fuel its long-term growth.
It is the right move.
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