Amazon Inc., the internet commerce leader and cloud computing pioneer seems to be one of the beneficiaries from the coronavirus COVID-19 crisis.
Amazon's stock is basically unchanged year 2020 to date while the Standard and Poor's 500 stock market index is circa 24 % down year to date.
Amazon is benefiting from higher demand for e-commerce and cloud services now that people are obliged both morally and in many countries by law and regulations to stay at home. People must buy online now that shopping malls are closed and they also buy groceries online. What is more, people are working from home, which basically increases several fold the demand for cloud services and computation in which Amazon is a pioneer and a market leader with circa 30% of the market.
So what is the intrinsic worth of Amazon currently? As of now Amazon's market capitalization is 949 billion USD with a stock price of 1906 USD. I estimate that in the current coronavirus economic crisis Amazon is worth around 700 billion USD which would reflect a price of 1405 USD.
Why the lower valuation? Up till now Amazon Inc. has proved to be an island oasis in the current economic destruction basically. Yes, I know the demand for Amazon services is higher, but I doubt Amazon could remain an unaffected oasis. Yes, Amazon has been hiring extensively. But there are already reported cases of coronavirus in Amazon warehouses, see CNN link:
https://edition.cnn.com/2020/03/25/tech/amazon-workers-coronavirus/index.html
Amazon reported coronavirus cases CNN Link
Amazon's business is bound to get affected by the coronavirus pandemic. But yes, Amazon most probably would fall less than the overall market.
However, Amazon has exhibited very low profitability or even made losses in most of its history. If the coronavirus COVID-19 crisis goes on for 1 or 2 years Amazon could face solvency issues. Up till now Amazon has resolved that problem by raising funds from public funds and being mildly profitable. Yes, I know Amazon's cloud business is the main profit driver of the company, but its online delivery business outside the USA is mainly making losses as can be seen from Amazon's latest financial reports:
https://ir.aboutamazon.com/news-release/news-release-details/2020/Amazoncom-Announces-Fourth-Quarter-Sales-up-21-to-874-Billion/default.aspx
Amazon's latest financial reports
In a negative scenario of this crisis going on for 2-3 years the market capitalization of Amazon could fall drastically to around 150 billion USD - 200 billion USD.
Basically, profitability is rewarded in this market. Companies with strong balance sheets, i.e. low debt and high amount of liquid assets will survive this economic shock.
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Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
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Respectfully yours,
Petar Posledovich
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