Amazon (NASDAQ: AMZN) Within Spitting Distance of a New All-Time High!

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Amazon (NASDAQ:AMZN) is on the cusp of breaching its previous record high closing price, registered on the 19th of February 2020, as per the stock’s performance in Tuesday’s pre-market trading session.

Given the astonishing range of Amazon’s product portfolio, it is hardly surprising that the stock has remained resilient to the recessionary waves currently propagating through the breadth and file of global commerce amid the coronavirus (COVID-19) pandemic. Year to date, the stock is up 17.37 percent even as the broader S&P 500 index has tumbled by 14.52 percent in the same timeframe. Based on Monday’s closing price, Amazon retains a market capitalization of $1.08 trillion.

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In a testament to the coronavirus-induced panic and the corresponding boom in the online retail space, Amazon announced last month that it would hire 100,000 new full and part-time workers across the U.S. in order to meet the surging demand on its delivery and logistics segment. Having fulfilled its earlier pledge, the e-commerce behemoth announced this week that it would hire additional 75,000 workers. This development follows a recent surge in online orders for the delivery of household items and medical supplies amid spatial distancing measures enacted to curtail the spread of the COVID-19 infections.

This hiring spree is not expected to come without attendant costs. As an illustration, Amazon will offer a $2 premium above its current $15 per hour wage rate across the United States. The company will also offer this premium in other jurisdictions, such as Canada and the UK. Consequently, the associated wage costs are now expected to balloon past $500 million.

As a testament to the extent of strain upon Amazon’s delivery infrastructure, the company has announced that it will not accept new customers for grocery deliveries. Instead, all such prospective customers will now be placed on a waitlist for the time being as the company works to add capacity.

Given the pace of this frenetic activity, RBC’s research house concluded recently that Amazon's online grocery segment will likely deliver merchandise worth an astonishing $70 billion by the end of 2023, a level that is over three times last year’s delivery volume.

Nonetheless, it should be noted that Amazon does face certain risks as the pandemic continues to hold the global economy hostage. For instance, given the rising levels of unemployment and the ensuing demand destruction, customers are far less likely to splurge on Amazon’s upcoming Prime Day in July. Moreover, small and medium-sized businesses are currently trying to curtail expenditure in order to secure their cash flows. This may lead to these businesses delaying their shift to the cloud, thereby, reducing the overall demand for Amazon Web Services (AWS). Bear in mind that this development will have a material impact on Amazon’s financials. As an illustration, the AWS segment contributed 67 percent of Amazon’s operating income in the fourth quarter of 2019. Moreover, the company has earned $9.2 billion in operating profits from this segment in 2019 alone.

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Over the medium-term, however, the outlook for AWS remains bright. As Ivan Feinseth of Tigress Financials notes:

“With $35 billion in revenue over the NTM and greater margins than many of its other business lines,” AWS is the world’s largest cloud provider, with a client list that includes “many of the world’s leading companies.”

Perhaps in cognizance of these developments, the Wall Street behemoth JP Morgan (NYSE:JPM) recently raised the estimate for Amazon’s Q1 2020 revenue to $74 billion – $1 billion above the company’s own guidance!

Update: Amazon breached its previous high at the open today, registering a new intraday high of $2,212 in the minutes following the opening bell.