By
Godfrey Benjamin
April 18th, 2024
Amazon’s business appears to be thriving these days. At the same time, hovering around $1,800 per share, Amazon (AMZN) stock is down about 17% from its recent high.
Since coronavirus took its course, so did stock markets. Amazon.com Inc (NASDAQ: AMZN) stock has been pushed down together with the rest of the market. However, it seems the company has some secret cards in its sleeve. For now, when we look at the cash flow basis, the stock looks like a great buying opportunity. Yesterday, AMZN rose 2.78% and reached $1,880.93.
At the time of writing the stock was rising by 5.72% in premarket to $1,988.50. However, even now, after the stock has plunged by more than a fifth in less than a month, the P/E ratio is a huge 73.5.
We already wrote of how the company’s web services are ready to offset any problems in the core business. Social distancing and forced isolation can certainly only help Amazon’s online shopping platform. Amazon announced yesterday it would hire 100,000 additional staff to deal with the heavier volume this week.
Amazon Ramps Hiring, Opening 100,000 New Roles
Dave Clark, Amazon’s senior vice president for worldwide operations, confirmed the company is looking at a massive surge in customer demand related to the coronavirus pandemic.
He wrote in his blog post:
“We are seeing a significant increase in demand, which means our labor needs are unprecedented for this time of year. We are opening 100,000 new full and part-time positions across the U.S. in our fulfillment centers and delivery network to meet the surge in demand from people relying on Amazon’s service during this stressful time, particularly those most vulnerable to being out in public.”
He also added that in addition to the 100,000 new roles, and to recognize the work of its employees, Amazon will be adding an additional $2 per hour worked through April from our current rate of $15/hour or more, depending on the region, C$2 in Canada, £2 per hour in the UK, and approximately €2 per hour in many EU countries.
But let’s go back to Amazon (AMZN) stock, shall we? Investors seem to have forgotten that there are still some serious threats to the company’s business model during this crisis even though it still can be manageable since the situation is, hopefully, improving.
Amazon (AMZN) Investors Are Waiting for the Next Quarterly Report
A big piece of Amazon’s supply chain is based in the epicenter of the coronavirus outbreak: China. Around 40% of Amazon’s third-party sellers are based in China that has been placed under the lockdown. Also, most of the third-party sellers not based in China rely on Chinese factories to produce their goods.
We also have the whole infrastructure: truck drivers and warehouse workers who are just as important to the supply chain. They cannot work from home, can they? Also, the U.S. and other developed countries could come to a situation where they have to divert truck traffic to meet emergency medical supplies if the pandemic spreads beyond control.
The impact of this sudden and extreme shutdown won’t be reflected in Amazon’s books until the next quarterly report is published on April 23. By then, much of Europe and North America will also be shut down.
AWS’s largest enterprise customers are Apple Inc (NASDAQ: AAPL), Google (NASDAQ: GOOGL), Microsoft Corporation (NASDAQ: MSFT), Facebook Inc (NASDAQ: FB) and the BBC and they will survive this crisis so AWS’s top line shouldn’t suffer much. AWS represents 14% of Amazon’s total sales and a significant percentage of the company’s operating income. Web Services operates on a gross margin of roughly 23% on average, while the core business operating margin is around 1.5%.
Strong and Stable Amazon (AMZN) Balance Sheet
These numbers are quite important if we know that, during the last two recessions, Amazon made it because of the strength of its balance sheet.
Let’s also mention that the company’s long-term debt is $23.5 billion and together with other long-term commitments, the total debt comes to approximately $50 billion, which is 16% higher than the value of underlying equity.
However, the company also has $55 billion in cash and cash equivalents which covers its long-term liabilities and free cash flow to equity is estimated to exceed $48 billion this year. In other words, Amazon is far from a liquidity crunch if the debt market tightens in 2020.
Let’s also mention that the main measurement of Amazon comes from free cash flows. The annual free cash flow run rate was on track to reach $48 billion this year. By that measure, the stock price is merely 17.5 times free cash flow per share in 2020 at the moment. In other words, the free cash flow yield is 5.7%.
Amazon Prime Pantry Can’t Stock the Shelves Fast Enough
However, when it comes to online shopping, even Amazon isn’t untouchable. Yesterday it announced it is temporarily closing down its Prime Pantry service after orders spiked due to the coronavirus outbreak.
“Pantry is temporarily closed. We are busy restocking. Amazon Pantry is not accepting new orders at this time while we work to fulfill open orders and restock items following increased demand. We are working hard to make these products available again and will update customers once we can take new orders,” stated the Amazon spokesperson.
The illustrations were provided by Depositphotos.com