Amazon has been one of the biggest ‘winners’ from Covid 19. The shift to online shopping has been given a structural boost. But costs are rising too. Amazon warned last Thursday that hiring new workers, testing and providing protection from the virus could leave it with an operating loss in Q2.
However, it is worth reiterating a key point from the last commentary (April 29th):
“It will be important to look beyond these numbers. For the sake of public relations, it may pay for tech companies to accept margin compression and wait until the world has moved through the Covid 19 crisis, before posting record quarterly profits. The short term focus will need to be on worker safety.”
It is, quite simply, poor PR to be putting out record profit numbers right now.
The market has certainly been willing to reward the original FAANG companies for business models that are adjusting well to the demands of Covid 19. Despite Friday’s drop, the FAANG market capitalisation has risen 5.3% so far this year.
But the increasingly violent protests against lockdowns are a concern. Michigan has a death rate from Covid 19 (404 per 1m) that is nearly double that of the US (205). It has the highest death rate for people testing for Covid 19.
Around half of the states are easing lockdown measures, but some are doing so under pressure from gun-toting, right-wing activists.
Summary
- Faangs have the right business models
- Margins will be squeezed in the short run
- But jury still out on longer term impact
