Rising Costs may hurt Amazon’s profits but analysts still see its stock as a solid buy.
Amazon is set to release its Q4 earnings later today- after the close of the market. Its revenue expectation is $119.68 billion and Earnings Per Share expectation is $7.16. Investors focus will be on amazon’s rising costs which is likely to affect its earnings despite amazon’s impeccable sales.
Due to the pandemic, Amazon’s sales have been on the rise as people, who are locked down at home, continue to make purchases online. However, it is this increase in demand that is also responsible for the increase in Amazon’s cost- as the company had to invest in new warehouses and also expand its delivery capabilities.
Also driving cost in Amazon is Employee acquisition and satisfaction. Amazon is spending billions of dollars on employee acquisition, safety, employee pay raise, conducting medical tests for employees and stabilizing its supply chain. Thus, though investors expect an increase in sales, this sales does not necessarily translate to profit due to its burgeoning cost.
Notwithstanding the cost pressures, Amazon’s ever growing cloud computing segment could still crush market expectations. Just so you know, Amazon is the world’s largest cloud infrastructure provider (through its Amazon Web Services(AWS)) and this segment generates the largest share of the company’s profit.
Because AWS is a business with high profits, it provides amazon with enough cash flow to expand its business strategies. The cloud computing division produced 29% growth in both Q3 and Q2, as other companies continue to shift their data to servers provided by Amazon.
Analysts are of the opinion that investors shouldn’t concern themselves with Amazon’s escalating costs bearing in mind Jeff Bezos, its CEO’s, amazing track record of exceeding investors/markets expectations. A majority of analysts who watch the stock have a buy rating on it.
Even after gaining more than 65% during the past 12 months, Amazon continues to be a solid pick for long term investors.