While most retailers are seeing a drop in demand during the coronavirus (COVID-19) pandemic, Amazon.com (NASDAQ:AMZN) can't keep up with it. As the outbreak escalates in the U.S., shoppers have flocked to Amazon to stock up on basic supplies like pasta, water, and toilet paper. That's resulted in product shortages and lengthening of delivery times.
Now Amazon is taking action. The online retail giant this week said it is hiring more workers and offering others a raise in order to handle the extra business. This move could be a positive sign about revenue in the current quarter -- one that will be catastrophic for many others in the retail industry.
Items out of stock
If you've tried to order food or household products on Amazon over the past couple of weeks, you might have had the same experience that I had: Some items were out of stock, and Amazon's promise of two-hour delivery was impossible to keep. At the same time, customers reported a similar scenario at rival Walmart's online operation. And most of us have seen the empty shelves at brick-and-mortar supermarkets in recent days. How Amazon handles the situation will be an important point for customers and investors.
Here are the details of Amazon's plan: Amazon is spending more than $350 million worldwide to boost pay by $2 or the local currency equivalent for employees in fulfillment, transportation, stores, and delivery through the end of April. The offer includes the U.S., Canada, the U.K., and several European Union countries. The retailer also is creating 100,000 full-time and part-time positions in the U.S. in fulfillment centers and delivery to meet demand.
So why is this a good sign?
The fact that Amazon is expanding and investing during this time of crisis indicates the company is confident its efforts will bear fruit financially. The amount Amazon is investing in the employee pay raises is about 11% of its $3.3 billion in fourth-quarter net income. At that time, the retailer already had plenty of positive news. Amazon said more people joined its subscription program, Prime, in the quarter than ever before, and the number of items delivered through its one-day and same-day delivery options more than quadrupled year over year. The need for more employees now, and Amazon's willingness to spend on hiring, make me optimistic about the next set of revenue figures.
And that is exactly why I favor buying Amazon shares. The next earnings reports may be bumpy for many, as they will reflect the impact of the coronavirus crisis. It's likely that Amazon's news will be better, considering this increase in demand. Before the outbreak, Amazon predicted first-quarter 2020 net sales would climb between 16% and 22% to as high as $73 billion.
Use up the pasta
That said, there is always the possibility that growth in revenue will fall short of analysts' expectations. It's also possible that consumer demand may wane if the crisis is shorter than expected. Consumers may choose to use up their pasta, rice, and other products before making new orders. Even if Amazon sees a lull in activity, though, I remain bullish on the shares.
Amazon stock has resisted the general market drop, falling only about 2% this year. But the company has a steady history of revenue growth and a variety of businesses, meaning there is plenty of room for share upside well into the future.