Fuel Inflation Fee In Turn Inflates Amazon Stock

AMZN stock - Fuel Inflation Fee In Turn Inflates Amazon Stock

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What’s good for Amazon (NASDAQ:AMZN) stock may not necessarily be good for anyone else. But that’s the way it goes in the investing game sometimes.

A company makes a move to reduce expenses or shore up profits and it helps the company’s shareholders. But sometimes it also means that expenses for everyone else are going up too. And that’s what brings us to Amazon stock today.

Amazon is the largest e-commerce company in the world, with roughly 40% of the global market. It’s coming off a quarter where it earned $137.4 billion in revenue and $5.80 per share in adjusted earnings. And those mammoth numbers were considered to be a disappointment. That’s how far Amazon’s set the bar.

And it’s coming off a tough year. AMZN stock grew only 2% in all of 2021. All year it battled oversized expectations from Covid-19 impacted comparable numbers as e-commerce exploded.

Nobody can expect Amazon to stand pat. And it’s not. It already increased the cost of Amazon Prime membership for the first time in four years, bumping the cost from $119 to $139. That will bring in more revenue.

And it announced a 20-for-1 stock split that will be the company’s first since 1999. Stock splits have a history of bumping up investor enthusiasm because it makes the stock more accessible. So AMZN stock will be a direct beneficiary from that move.

Now Amazon’s rolling out another move — a 5% fuel inflation fee that it’s slapping on online merchants that use its shipping services.

Is that great news for shoppers and those online merchants? Absolutely not. Merchants won’t likely eat that fee — they’ll pass it along to their customers. Consumer prices are already up 8.5% from just a year ago as inflation sweeps through the U.S. economy. And gas prices are more than $4 per gallon, thanks much in part to Russia’s invasion of Ukraine.

But is it good news for AMZN stock and its shareholders? Absolutely yes. Amazon stock was up more than 3% on the news.

“Amazon has seen its shipping costs increase. If left unchecked, these have the potential to erode profits,” GlobalData managing director Neil Saunders told MarketWatch.

On the date of publication, Patrick Sanders did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders.


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