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Tech giants feel COVID sting

Lachlan Maddock
— 1 minute read

The tech stocks that have been driving the market rally were down as companies reported flat earnings growth and massive COVID-19 spends.

Amazon reported first-quarter sales of US$75.5 billion, while operating expenses grew to US$71.5 billion. And while Amazon reported a 27 per cent increase in net sales compared with first-quarter 2019 – and flagged that those sales could grow by 18 per cent to 28 per cent compared with second-quarter 2019 – CEO Jeff Bezos revealed to shareholders that Amazon expects to spend some its second-quarter profits on its COVID-19 response. 

“If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small,” Mr Bezos said. “Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe.”

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Those expenses include investments in personal protective equipment, enhanced cleaning of facilities, and “less efficient process paths” to allow for effective social distancing. Mr Bezos also flagged higher wages for hourly teams and “hundreds of millions” for Amazon to develop its own COVID-19 testing capabilities. 

“There is a lot of uncertainty in the world right now, and the best investment we can make is in the safety and wellbeing of our hundreds of thousands of employees,” Mr Bezos said. “I’m confident that our long-term-oriented shareowners will understand and embrace our approach, and that in fact they would expect no less.”

Amazon’s share price fell more than 5 per cent in after-hours trading following the announcement. 

Meanwhile, Apple reported quarterly revenue of $58.3 billion, an increase of 1 per cent from the previous quarter. The company withdrew its second-quarter guidance in March, citing the impacts of COVID-19. 

“Despite COVID-19’s unprecedented global impact, we’re proud to report that Apple grew for the quarter, driven by an all-time record in services and a quarterly record for wearables,” said CEO Tim Cook. “In this difficult environment, our users are depending on Apple products in renewed ways to stay connected, informed, creative, and productive.”

Apple stock was down more than 2 per cent in after-hours trading.

 

Tech giants feel COVID sting
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