Despite third-quarter profits of Amazon.com, Inc (NASDAQ: AMZN) falling 26%, the online retail giant’s investment in faster shipping infrastructure is gearing up the stock for a future surge.
To recap: The e-commerce giant’s net income fell from $2.9 billion to $2.1 billion year-over-year even as net sales rose 24% to $70 billion.
This was primarily due to increased costs as a result of the retailer’s efforts to cut delivery times from two days to one day. In addition to hiring more workers at its various fulfillment centers, Amazon has also expanded its shipping network. Compared to the third quarter of 2018, the total operating expenses increased by 26.43% from $52.9 billion to $66.8 billion.
Is Amazon a Buy?
According to Youssef Squali, an analyst at SunTrust, the investments Amazon has made will “solidify AMZN’s competitive moat,” which will lead to “superior growth with higher margins over time’ making the stock ‘one of the most attractive assets.”
And despite missing estimates, several Wall Street firms have maintained a buy rating on the online retail giant. This includes UBS, according to analyst Eric Sheridan:
“We remain Buy rated and we see any post-quarter share weakness as a good entry point against the long term narratives.”
J.P. Morgan and Guggenheim have also maintained a buy rating on the stock with any pullback presenting a purchasing opportunity.
During the earnings call, Amazon founder and CE, Jeff Bezos said cutting the free shipping times for Prime customers twas the “right long-term decision”:
“Customers love the transition of Prime from two days to one day — they’ve already ordered billions of items with free one-day delivery this year.”
How long will investor pain last?
The decline in net income is unlikely to be the last. Prior to this fall, the last time there was a decline and a miss in analyst expectations was two years ago.
But in its fourth-quarter guidance, Amazon’s operating income is expected to come in between $1.2 billion and $2.9 billion. During the same quarter last year, Amazon raked $3.8 billion in net income. If this guidance turns out to be correct, this would translate to a decline of between 24% and 68%.
Will Jeff Bezos lose his ‘richest man alive’ crown?
Ahead of the opening bell, Amazon traded $1,668.87, a decline of slightly over 6% from Thursday’s close of $1,780.78.
Immediately after Amazon released its Q3 results, the stock dropped by nearly 10% in after-hours trading. The slide raised fears that Bezos could lose his title as the world’s richest individual.
But with Amazon having pared some of the losses, Bezos looks like he is holding the first position in the Bloomberg Billionaires Index for now.
Last modified: September 23, 2020 1:12 PM