Amazon (NASDAQ:AMZN) stock fell more than 20% from its peak during the recent market crash. That’s not bad, all things considered, but investors still showed some concern about the company’s business during the novel coronavirus outbreak. And to be sure, Amazon stock could take a marginal hit in some of its operations. Amazon Web Services may slow down its growth for a bit as many of its small-business clients struggle. Amazon’s nascent advertising business will probably lose traction this quarter as well, given the falling ad spend thanks to the crisis.
Investors worried about these factors, however, are missing the bigger picture. Amazon’s core retail business will thrive within the current environment.
Both the online business and its Whole Foods grocery stores are ideal for the current stay-at-home reality. In fact, Amazon has become a lifeline delivering crucial supplies for millions of Americans. Other Amazon businesses, such as its streaming video and music services, benefit from the stay-at-home orders as well.
Let me put it simply: Never bet against Amazon.
The company has built a fantastic track record over the past 25 years, during both good times and recessions. The coronavirus will prove to be another shining moment in the company’s storied history.
Amazon Stock: Business That Benefits From Economic Shocks
The economy is in crisis. The government just passed the largest stimulus act in history to fight back. Over at Amazon, however, things are in fine shape. In fact, the company just hired 80,000 new workers during a period when 10 million Americans filed for unemployment! Clearly, Amazon will be a net-winner from crisis, just as it always seems to be.
This is hardly Amazon’s first crisis. While its share price crashed during the aftermath of the dot-com bust and the 9/11 attacks, Amazon was able to consolidate market share from rivals. By 2008, Amazon was in a fantastic position. As consumers had to cut spending in the financial crisis, Amazon’s attractive value proposition brought in huge traffic.
Then, as the economy recovered in the 2010s, many malls and Main Street stores never recovered, but Amazon grew faster than ever. The coronavirus will prove to be another moment where Amazon was able to make gains while other retailers struggled.
This Is Amazon Go’s Moment
You may recall hearing about Amazon’s new cashier-free grocery stores over the past few years. The concept has quickly evolved from a prototype to more than two dozen locations in cities such as New York and Seattle. A customer simply enters the store while using the Amazon Go app on their phone. When a shopper picks an item up off the shelf, a QR code is scanned and added to the shopper’s bill via the app. The shopper pays digitally for everything in their cart as they exit the store.
This may have seemed like a cool little concept that would go over well in a tech-forward city like San Francisco. Now, however, the coronavirus has pushed Amazon Go from interesting experiment to a potential lifesaving technology system. Imagine how many people would be out of harm’s way if we had cashier-less grocery stores in place around the country already.
Notably, at the beginning of March, Amazon announced that it will be licensing out Amazon Go’s software to other retailers. Presumably, big competitors like Walmart (NYSE:WMT) would have little interest doing a deal with a direct rival like Amazon. However, there is a huge opportunity for Amazon to partner with small and midsize retailers looking to automate their stores in the wake of the pandemic.
In the era of social distancing, Amazon Go is set to take off.
Amazon Stock Verdict
Arguably, one of the biggest risks to Amazon recently has come from employee complaints. Labor leaders love to criticize Amazon, and the recent crisis has intensified claims that Amazon underpays employees and provides unsanitary working conditions. Workers at more than a dozen Amazon warehouses have tested positive for Covid-19, adding to concerns.
To its credit, however, Amazon is trying to resolve the disputes quickly. And at the end of the day, the company’s efforts with things such as Amazon Go show that it remains capable of turning its worst problems — such as worker strikes — into opportunities.
Turning to the bigger picture, as we reach the other side of the epidemic, a large percentage of folks who have boosted their online shopping activity will maintain a higher level of digital spending than before the epidemic. This would have gradually happened anyway, but the coronavirus is acting as a huge accelerator to the existing trend.
This comes back to what I call the “Technochasm.” This is the growing gap between the winners in the new economy and those that are being left behind.
We see it with retail in particular. You have last century’s champions such as the department stores furloughing workers, shutting stores and cutting back their remaining operations. Meanwhile, Amazon is continuing to grow its infrastructure and workforce even in the face of the coronavirus crisis.
For your portfolio to be on the right side of the Technochasm, you need to own the companies that benefit from rather than crumble in the face of disruption. The current pandemic is creating a stark divide between retail’s winners and also-rans.
Amazon, for its part, is taking all the right steps to stay in the winner’s circle.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends … before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south. Eric does not own the aforementioned securities.
