It seems as though Amazon (NASDAQ:AMZN) doesn’t care about the welfare of its frontline employees. Mistreating them at every turn, the world’s biggest eCommerce company ought to be lapping the rest of the markets in this stay-at-home environment. And yet, Amazon stock is barely adding any value.
Mind you, that’s a heck of a lot better than the 21% decline of the U.S. markets as a whole. However, several services stocks are outperforming Amazon in 2020, including Chewy (NYSE:CHWY), which is up 29% year to date and 70% since its June 2019 IPO.
At the end of December last year, I wrote an article entitled Amazon Closes the Book on a Disappointing 2019. Although it managed to deliver a 19% total return in 2019, the U.S. markets as a whole did 11 percentage points better.
So, yes, Amazon didn’t perform up to expectations in 2019. Early in 2020, it appears to be delivering another mediocre year. From a financial perspective, this shouldn’t be happening.
In the trailing 12 months, Amazon has free cash flow of $21.7 billion, net income of $11.6 billion, and sales of $280.5 billion. By any standard, those are great numbers. And yet its stock continues to sputter.
Why? Because it doesn’t care about its frontline workers in its warehouses and stores.
A Closer Look at Amazon Stock
In my last article about Amazon in late February, I recommended investors buy its stock, despite the fact the company continues to play with my emotions. I just don’t understand why a company with so much wealth has to have so many bad encounters with the people who make Jeff Bezos his billions.
Bloomberg recently covered an example of how little the company cares.
In the article, contributors Spencer Soper and Matt Day describe a March employee orientation in Dallas where the company packed 70 people into a room at a time when the coronavirus had already started to kill Americans. One of the people at the orientation made the mistake of questioning the crowded conditions at a time when there was a health crisis erupting.
“‘They made jokes and told me to leave if I was unhappy,’ said the person, adding that one manager said Amazon’s operations were exempt from the rules because the company is considered an essential service. ‘They didn’t care one tiny bit.’ The former customer rep took the job but still worries about getting sick,” Soper and Day reported.
Naturally, in an emailed statement to Bloomberg, Amazon defended itself, stating that they’ve now moved these hiring and orientation events to a virtual setting. Well, I guess if Amazon says it’s so, it’s so.
People desperate for a job will do things they usually wouldn’t, like packing themselves into a crowded meeting room, so that they can be one of the 100,000 lucky people Amazon is hiring to meet the increased demand for its online products.
Amazon and Its Workers
Amazon likes to pat itself on the back by trotting out how generous it is to its frontline workers.
“In the U.S., we will be adding an additional $2 USD 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,” Dave Clark, Amazon’s Senior Vice President of Worldwide Operations stated March 16.
“This commitment to increased pay through the end of April represents an investment of over $350 million in increased compensation for hourly employees across the U.S., Europe, and Canada.”
And how fast do you think Amazon will cut these people loose when the need for them goes away later this year? Faster than you can place an online order.
On March 30, Amazon employee Chris Smalls, who had worked at the company for five years, was fired for violating social distancing guidelines on several occasions. However, Smalls’ version is that he was fired for organizing an employee protest over fears of a coronavirus outbreak at the Amazon fulfillment center where he worked.
Smalls had something to say to Jeff Bezos:
“You need to hold your spokespeople and your regionals accountable because this is inhumane what they’re doing. They’re forcing the site leaders to keep these buildings open where people are testing positive,” the five-year employee told ABC News.
These are not isolated incidents at Amazon. It has routinely been involved in workplace issues in recent years that put the company’s concern for the wellbeing of its employees in doubt.
The Bottom Line on Amazon Stock
In my November article about Amazon, I finished by stating that “As long as Jeff Bezos continues to treat some of the company’s employees questionably, there are always going to be investors who will pass on owning Amazon stock.”
These latest incidents aren’t good for the Amazon brand. With ESG investing gaining a large following, Amazon stock will continue to sputter, missing out on a once-in-a-lifetime opportunity.
In February 2019, I stated that Amazon stock would get to $10,000 sooner than you think. Now, I’m not so sure.
While I still think it’s a buy for anyone who doesn’t care how a company treats its employees, you won’t see me buying its stock. Not until it cleans up its act.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.