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Why Amazon's Share Price Rose 27% in April

By Royston Yang – May 6, 2020 at 4:00PM

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More people are turning to e-commerce as numerous countries remain on lockdown.

What happened

Shares of Amazon.com (AMZN 1.20%) rose 27% in April, according to data provided by S&P Global Market Intelligence.

That built on the previous month's rise, putting Amazon's total year-to-date gain at 30.3%.

Man and woman holding card and smiling at a laptop screen

Image source: Getty Images.

So what

As millions of people hunker down in their homes due to the COVID-19 pandemic, many have turned to online shopping to fill their time. E-commerce retail demand has exploded as malls and stores have been forced to shut due to lockdowns imposed by governments around the world. Amazon logged revenue of $75.4 billion for its first quarter, up an impressive 26.4% year over year. 

Investors have been bidding up the shares of the e-commerce giant in the belief that it will continue to benefit from the switch from offline to online shopping. Though this increase may represent a temporary spike due to the lockdowns, people who had never shopped online before may be persuaded to continue shopping through Amazon, bypassing the tedium of driving out to physical stores for their supplies.

But the pandemic has taken a toll on Amazon's net income. The company needed to swiftly ramp up logistics and staffing to handle the surge of orders, pushing up fulfillment expenses by 34% year over year. Overall expenses rose by 29.3% year over year, resulting in lower operating profit and lower net income.

Now what

As Amazon ramps up spending and continues to hire to handle the increased volume in its business, profit growth for this year may remain elusive. The company is doing its part to help employees through this crisis by increasing its minimum wage in the U.S., Canada, and many European countries.

In March, the company hired 100,000 people for its fulfillment and delivery network. Another 75,000 jobs will be created by Amazon in April, bringing the total to 175,000 within just two months. Though it seems that costs may spiral upward rapidly in the short term, I believe the company will benefit over the long term as more and more people turn to it for online orders in a post-pandemic world.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Royston Yang has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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