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The Splitit Ltd (ASX: SPT) share price is an outlier amongst its buy now pay later peers on Wednesday, surging 19.23% to 62 cents.

Surprisingly, the company has not made any price-sensitive announcements since its Q2 FY21 activities report on 29 July.

Let’s take a closer look at the price action behind Splitit shares.

Splitit share price leading the BNPL sector

Splitit opened 8.65% higher to 56.5 cents on Wednesday morning but managed to climb as high as 62 cents before noon.

At the time of writing, approximately 7 million shares have traded hands, compared to its 10-day average of 3 million.

By comparison, leading BNPL names such as Afterpay Ltd (ASX: APT), Zip Co Ltd (ASX: Z1P) and Sezzle Inc (ASX: SZL) have managed to eke out some small gains, rising 0.18%, 1.41% and 0.91% respectively.

Smaller peers with a similar market capitalisation as Splitit have delivered mixed performances on Wednesday, with Laybuy Group Holdings Ltd (ASX: LBY) up 0.95% but Openpay Group Ltd (ASX: OPY) and Humm Group Ltd (ASX: HUM) down 3.31% and 0.51% respectively.

Maybe its Afterpay

Afterpay’s $29 billion takeover offer from Square Inc (NYSE: SQ) has sent ripples throughout the BNPL sector.

Most ASX-listed BNPL shares have logged double digit returns since the takeover announcement on Monday.

The Zip share price, for example, has welcomed the takeover news, surging 19.58% this week.

Similarly, the Splitit share price has jumped 32.61% this week as well.

Or maybe a dead cat bounce

The Splitit share price is one of the most beaten up BNPL shares.

Last Friday, the company’s shares hit a 13-month low of 45.5 cents or a year-to-date decline of about 65%.

While a 32% rally this week is impressive, Splitit has a long road ahead to reach breakeven for the year.

The post Splitit (ASX:SPT) share price surges 20% on Wednesday appeared first on The Motley Fool Australia.

More reading

• The Zip (ASX:Z1P) share price is zooming higher once more
• Why the Splitit (ASX:SPT) share price is surging 7% today
• Splitit (ASX: SPT) share price wobbles after business update
• How has the Afterpay (ASX:APT) share price responded to competition in the past?
• Why isn’t the Splitit (ASX:SPT) share price tumbling as much as other BNPL shares?

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool Australia has recommended Humm Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Air New Zealand Limited (ASX: AIZ) share price has edged only marginally lower today. It comes with the airliner announcing greater than expected losses and a change in liquidity.

At the time of writing, shares in the company are trading for $1.41 – down just 0.35% on yesterday’s close. For context, the S&P/ASX 200 Index (ASX: XJO) is 0.16% higher.

Let’s take a closer look at the company’s announcement.

What did Air New Zealand announce?

In a statement to the ASX, Air New Zealand gave a financial update following the New Zealand government’s decision to suspend the Trans-Tasman bubble for 8 weeks.

The Kiwi carrier says it expects losses before other significant items of NZ$530 million for FY22. That assumes a fuel price of US$78 per barrel and an exchange rate of 70 New Zealand cents per US dollar.

The company previously said it expects losses for the last financial year to be no more than NZ$450 million.

In its statement, the company said it does not expect demand to pick up to previous levels once the suspension is over. It cites the risk of further travel bubble suspensions as one reason.

As well, Air New Zealand says operating cash flow, unsurprisingly, will be reduced due to the current coronavirus situation in Australia. Therefore, the airliner will draw down from its loan facility from the New Zealand government.

While cash flow is reduced, the company says it is still net positive, mostly due to domestic travel in New Zealand and Ardern government funds. Air New Zealand still has NZ$1.15 billion available to it under the loan facility agreement.

Air New Zealand share price snapshot

Over the past 12 months, the Air New Zealand share price has increased 14.1%. Year-to-date, however, it is down 16.3%.

On the first trading day of 2020 (pre-pandemic), Air New Zealand shares opened at $2.86. At its current share price, the company has lost just over half of its value since then.

Air New Zealand has a market capitalisation of around $1.58 billion.

The post Air New Zealand (ASX:AIZ) share price flat despite earnings downgrade appeared first on The Motley Fool Australia.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Woodside Petroleum Limited (ASX: WPL) share price is pushing higher during early afternoon trade. This comes despite the energy producer providing investors with an update on its Scarborough project.

At the time of writing, Woodside shares are fetching for $21.95, up 0.60%. In comparison, the S&P/ASX 200 Index (ASX: XJO) is standing at 7,507 points, up 0.4%. 

What did Woodside announce?

In today’s statement, Woodside revealed that it has increased its capital cost estimate by 5% to US$12 billion for its Scarborough project.

The revised amount comprises US$5.7 billion for the offshore component, including modifications to Pluto Train 1 to allow processing of Scarborough gas.

The US$6.3 billion offshore component encompasses an increase in offshore production capacity from 6.5 Mtpa to 8.0 Mtpa of LNG and an additional well.

Woodside’s previous cost estimate was last updated in November 2019.

The price increase is a result of a refreshed pricing from major contractors which underpins the updated cost estimate. Woodside noted that this reflects its work with the contractors since last year, maximising the project’s value.

Management stated that the expected internal rate of return (IRR) on Scarborough and Pluto LNG plant is more than 12%. The venture has a global competitive cost of supply of approximately $6.8/MMBtu (metric million British thermal units) to north Asia and is anticipated to deliver the first cargo in 2026.

Woodside acting CEO, Meg O’Neill commented:

Significant progress has been made towards our targeted final investment decision on Scarborough and Pluto Train 2 this year.

The cost update includes value-accretive scope changes to deliver an approximately 20% increase in offshore processing capacity and to modify Pluto Train 1 to allow increased Scarborough gas processing. It also reflects the work undertaken with our contractors to optimise the execution schedule and manage costs in preparation for FID.

Woodside’s contracting strategy for Scarborough reduces cost risk, with approximately 90% of total project contractor spend structured as lump-sum and fixed rate agreements.

The final investment decision (FID) is being targeted to be completed sometime later this year. Woodside has finalised technical work to be ready for the construction phase following the FID.

Woodside share price summary

The Woodside share price is up around 7% over the last 12 months, but down 3% year-to-date. The company’s shares took a dive to $14.93 when COVID-19 put the global economy at a standstill. However, gradually its shares began to rebound.

Based on the current share price, Woodside has a market capitalisation of roughly $21.2 billion.

The post Woodside (ASX:WPL) share price edges higher despite Scarborough cost increase appeared first on The Motley Fool Australia.

More reading

• ASX 200 midday update: GUD results, Woodside update, ANZ appointment
• 5 things to watch on the ASX 200 on Wednesday
• How does the Woodside Petroleum (ASX:WPL) dividend compare to the energy sector?
• 5 things to watch on the ASX 200 on Tuesday
• ASX 200 Weekly Wrap: ASX grinds to a halt following new all-time high

Motley Fool contributor Aaron Teboneras owns shares of Woodside Petroleum Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Dicker Data Ltd (ASX: DDR) share price has just hit a new high. Shares hit the milestone of $14.10 during early intraday trading. Since then, however, shares in the software as a service (SaaS) company are down 2.84% to $13.66.

While the company has not made any market announcements since 30 July, its share price has been on the up in subsequent days.

Let’s take a closer look.

The data is in

The Dicker Data share price rocketed 16% on Monday when it announced the acquisition of IT distribution company Exceed Group for $68 million, cash.

Exceed generates an annual turnover of approximately $295 million, of which $228 million is generated in New Zealand. At the time of the announcement, Dicker Data said the deal will “propel Dicker Data NZ to become the second-largest IT distributor in New Zealand”. Dicker Data expects to generate about $476 million.

Since close of trade on Monday, Dicker Data shares have continued to appreciate. At the time of writing, their price is up an additional 3.9%. When they hit their all-time high, they were 4.8% higher.

Investors may still be trying to get in on the company, post the announcement.

Another potential reason for the rising Dicker Data share price? The general market is up.

The S&P/ASX 200 Index (ASX: XJO) has increased 1.69%. The S&P/ASX All Technology Index (ASX: XTX) is an astonishing 7.59% higher over the same time period.

Dicker Data share price snapshot

Over the past 12 months, the Dicker Data share price has increased 78%. Year-to-date, shares are 31% higher. Since listing on the ASX, Dicker Data shares have increased an astronomical 5,600%.

Given its current valuation, Dicker Data has a market capitalisation of around $2.4 billion.

The post The Dicker Data (ASX:DDR) share price has a new all-time high appeared first on The Motley Fool Australia.

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• Dicker Data (ASX:DDR) share price sets record high on acquisition update
• Here’s why ASX tech shares are up 6% on Monday
• Dicker Data (ASX:DDR) share price on watch after announcing key acquisition
• Dicker Data (ASX:DDR) exec: What COVID started, we’ll finish

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Dicker Data Limited. The Motley Fool Australia owns shares of and has recommended Dicker Data Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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There has been a lot of excitement around Square Inc (NYSE: SQ) planning to acquire Afterpay Ltd (ASX: APT). The acquisition news has sent the share price higher this week. In the hubbub, you might have missed the latest earnings report from the US-based payments company.

If and when the deal is done, Afterpay shareholders will effectively become Square shareholders. As such, it’s worth taking a look at how Square performed over the last quarter.

Square’s Q2 FY21 earnings and the Afterpay acquisition were announced on the same day. Because of this, it’s hard to tell which news investors were predominantly reacting to. Either way, it led to a 10% jump in Square shares.

Let’s review the results.

Square jumps on revenue more than doubling

Much like its acquisition target, Square can put on some impressive figures of its own. According to the release, net revenue in the second quarter increased 143% year over year (YOY) to US$4.68 billion.

For investors not fond of cryptocurrency, the company’s net revenue increased by 87% YOY to US$1.96 billion, excluding Bitcoin (CRYPTO: BTC).

Speaking of Bitcoin, customer transactions with the cryptocurrency skyrocketed compared to the same time last year. This resulted in Square’s bitcoin revenue roughly tripling on a YOY comparison.

Similarly, gross profit for the company jumped 91% YOY to US$1.14 billion. This was a team effort between the ‘Cash App ecosystem’ and the ‘Seller ecosystem’.

In June, Cash App reached 40 million monthly transacting active customers. Meanwhile, the Seller ecosystem achieved an 86% increase YOY on gross payment volume to US$38.8 billion.

The US$122.7 billion company finished the quarter with US$6.6 billion of cash at its disposal. Remember, the Afterpay acquisition is in exchange for Square shares, so this large cash pile should still be available.

Finally, for potential new Square investors – the company also acquired a majority stake in music streaming platform Tidal in April.

What it means for the Afterpay share price

If all goes ahead, Afterpay will come under the Square umbrella in the near future. Co-founder and CEO of Square Jack Dorsey said:

Square and Afterpay have a shared purpose. We built our business to make the financial system more fair, accessible, and inclusive, and Afterpay has built a trusted brand aligned with those principles. Together, we can better connect our Cash App and Seller ecosystems to deliver even more compelling products and services for merchants and consumers, putting the power back in their hands.

By the looks of it, the US payments company plans to integrate Afterpay into its own offerings to make buy now, pay later an option to merchants of all sizes. For example, think of the craft store at your local markets offering BNPL.

In short, Square’s continued growth momentum bodes well for Afterpay shareholders as it potentially opens the door for more Afterpay merchants. Additionally, until further notice, the Afterpay share price is somewhat intrinsically linked to the success of Square.

The post Square earnings, what it means for the Afterpay (ASX:APT) share price? appeared first on The Motley Fool Australia.

More reading

• The Zip (ASX:Z1P) share price is zooming higher once more
• Afterpay share price keeps climbing. RBA surprisingly bullish. Scott Phillips on Nine’s Late News
• What happens to my Afterpay shares in the Square takeover?
• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 drops, Afterpay jumps again, Credit Corp rises

Motley Fool contributor Mitchell Lawler owns shares of AFTERPAY T FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Bitcoin, and Square. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The 88 Energy Ltd (ASX: 88E) share price is rocketing today, up 11% to 5 cents apiece in late morning trade, having earlier posted gains of more than 20%.

Below we take a look at the ASX energy share’s latest oil field update.

What update did 88 Energy report?

The 88 Energy share price is soaring after the company updated the market on its Umiat oil field in the US state of Alaska.

According to the release, new studies conducted in conjunction with its Merlin-1 post well testing and analysis “have identified additional upside” at the Umiat oil field.

This comes after the oil field lease holder Emerald House, a wholly owned subsidiary of 88 Energy, received a data pack on the region that included the Umiat 3D seismic data. Before that, the company only had data interpreted from 2 seismic lines across the Umiat structure.

Other tailwinds

The 88 Energy share price may also be getting lifts after it reported that Emerald House had received approval from the US Bureau of Land Management (BLM) to defer its Umiat Year 2 Unit well commitment by 24 months. That commitment has now been pushed back to 31 August 2023.

The company said the extra time would enable it to optimise its plan for full field development. That includes looking into potential synergies with the Project Peregrine plans.

It also needs extra time to review the “extensive amount of historical data” it received from the sellers of the Umiat oil field. Potential development cost savings have been identified in studies already underway reviewing historical Umiat development plans.

88 Energy entered into an agreement to acquire the Umiat oil field on 8 January 2021 via its wholly owned subsidiary Emerald House. According to the company:

Umiat is a known oil field of high quality (38-degree API) crude at shallow depth. It is covered by two leases comprising 17,633 acres, which are in a unit that was formed in September 2019 with an initial 10-year term.

88 Energy share price snapshot

The 88 Energy share price has been on a tear this year, up an eye-popping 400% since March 2021. By comparison the All Ordinaries Index (ASX: XAO) has gained 26% over that same time.

The post Why the 88 Energy (ASX:88E) share price is rocketing today appeared first on The Motley Fool Australia.

More reading

• Here’s why the Vulcan (ASX:VUL) share price is up 8% on Wednesday
• ASX 200 midday update: GUD results, Woodside update, ANZ appointment
• The Zip (ASX:Z1P) share price is zooming higher once more
• Amazon investors get a reality check
• Here’s why the Creso Pharma (ASX:CPH) share price is up 7%

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Investors continue to rally behind the Vulcan Energy Resources Ltd (ASX: VUL) share price, surging another 11.26% to $11.07 on Tuesday.

Shares in the emerging lithium producer are up a solid 30.11% in the last month and 288.45% year-to-date.

What’s so special about the Vulcan share price?

Vulcan has come from humble beginnings, trading at just 16 cents at the beginning of 2020.

There is a distinct difference between the way Vulcan aims to produce its lithium compared to traditional brine and hard rock methods used by household names such as Galaxy Resources Limited (ASX: GXY), Pilbara Minerals Ltd (ASX: PLS) and Orocobre Limited (ASX: ORE).

Vulcan’s Zero Carbon Lithium project aims to use nearby geothermal energy to help it produce lithium chemicals and general electricity to power its operations.

A potential driver of the Vulcan share price this morning could be the company’s industry-leading life cycle assessment announcement.

The company estimates negative 2.9 tonnes of CO2 emitted per tonne of lithium hydroxide to be produced from its Zero Carbon Lithium project

Vulcan said that the negative figure is a product of “the significant impact offset generated by renewable geothermal energy production as well as use of geothermal heat to drive lithium processing”.

One offtake deal after another

Vulcan is fast approaching the construction phase for its Zero Carbon Lithium project.

Most mining companies seek to secure offtake partners prior to mine construction to help the producer lock in a future buyer for the material they plan to produce.

Vulcan’s feasibility study found that the project will have the capacity to produce approximately 40,000 tonnes of lithium hydroxide per annum from a current deposit of 1.12 million tonnes of lithium carbonate.

Last week, Vulcan announced that it had signed a binding lithium hydroxide offtake agreement with LG Energy Solution for 5,000 metric tonnes in the first year and ramp up to 10,000 metric tonnes from year two onwards.

On Monday, the Vulcan share price emerged from its trading halt, revealing a 5-year strategic partnership with Renault Group.

Renault has agreed to purchase between 6,000–17,000 tonnes per year of battery grade lithium chemicals for a 5-year term commencing 2026.

The post Here’s why the Vulcan (ASX:VUL) share price is up 8% on Wednesday appeared first on The Motley Fool Australia.

More reading

• Vulcan (ASX:VUL) share price gains 8% on news of negative emissions
• Up 2,000% in a year, why the Vulcan Energy (ASX:VUL) share price is gaining again
• Why is the Vulcan Energy (ASX:VUL) share price halted?
• Vulcan Energy (ASX:VUL) share price surges 10% on quarterly update
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Motley Fool contributor Kerry Sun owns shares of Vulcan Energy Resources Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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At lunch on Wednesday, the S&P/ASX 200 Index (ASX: XJO) has followed the lead of US markets and is pushing higher. The benchmark index is currently up 0.2% to 7,487.6 points.

Here’s what is happening on the ASX 200 today:

GUD outlook not so good

The GUD Holdings Limited (ASX: GUD) share price is falling today following the release of its full year results. Although the diversified products company delivered a result ahead of guidance, its outlook for FY 2022 appears to have spooked investors. In respect to the former, underlying earnings before interest and tax (EBIT) was up 24.8% to $101.2 million. This compares to its guidance of $98 million to $100 million. No guidance was given due to volatile trading conditions

Woodside Scarborough update

The Woodside Petroleum Limited (ASX: WPL) share price is pushing higher today despite an update on its Scarborough project costs. Ahead of the final investment decision on the project, the company has completed an update of the capital expenditure requirements for the Scarborough development. It is now expected to cost US$12 billion, up 5% from previous estimates. Despite this, Woodside’s Acting CEO, Meg O’Neill, reaffirmed that the development is a transformational project that will deliver enduring shareholder value.

ANZ board appointment

Australia and New Zealand Banking GrpLtd (ASX: ANZ) announced a new board appointment this morning. According to the release, Christine O’Reilly will join the ANZ Board on 1 November 2021 as a non-executive director, subject to meeting regulatory requirements. The release notes that Ms O’Reilly is one of Australia’s leading non-executive directors and currently serves on the boards of BHP Group Ltd (ASX: BHP) and Medibank Private Ltd (ASX: MPL).

Best and worst ASX 200 performers

The best performer on the ASX 200 on Wednesday has been the Pilbara Minerals Ltd (ASX: PLS) share price with a 5% gain on no news. The worst performer on the ASX 200 has been the EML Payments Ltd (ASX: EML) share price with a 3.5% decline. Once again, this is despite there being no news out the payments company.

The post ASX 200 midday update: GUD results, Woodside update, ANZ appointment appeared first on The Motley Fool Australia.

More reading

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• 2 buy-rated ASX dividend shares with 5%+ yields
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended EML Payments. The Motley Fool Australia owns shares of and has recommended EML Payments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Zip Co Ltd (ASX: Z1P) share price is gaining again today despite no news having been released by the company since late last month.

However, the buy now, pay later (BNPL) sector has been having a roaring week’s trade after Afterpay Ltd was handed a $39 billion takeover offer.

Right now, the Zip share price is 3.6% higher than its previous close. Shares in the BNPL provider are trading for $8.04 a piece.

That’s particularly impressive considering the S&P/ASX 200 Index (ASX: XJO) is just 0.35% higher, while the All Ordinaries Index (ASX: XAO) has gained 0.33%.

Let’s take a closer look at how Zip’s shares have been moving this week.

What’s up with Zip?

The Zip share price is among many ASX-listed BNPL shares having a great week.

Afterpay’s takeover offer, proposed by US financial services giant Square Inc, reinvigorated the BNPL sector which had previously been flat or struggling.

In fact, this week is the first time the market has seen large movements from Zip shares since the March tech selloff.

It’s spurred the Zip share price to gain between 7% and 9% every day this week. That’s led to a massive 18.98% boost since Monday.

Additionally, the Afterpay share price is now 32.48% higher than it was at Friday’s close.

At the same time, Sezzle Inc has gained an impressive 10% this week. Openpay Group Ltd is also 12% higher while Splitit Ltd has increased a whopping 26% since Monday.

Zip share price snapshot

The Zip share price’s gains this week have broken it out of an ASX slump.

It is now 40% higher than it was at the start of the year. It has also gained 25% since this time last year.

The company has a market capitalisation of around $4.4 billion, with approximately 562 million shares outstanding.

The post The Zip (ASX:Z1P) share price is zooming higher once more appeared first on The Motley Fool Australia.

More reading

• Afterpay share price keeps climbing. RBA surprisingly bullish. Scott Phillips on Nine’s Late News
• What happens to my Afterpay shares in the Square takeover?
• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 drops, Afterpay jumps again, Credit Corp rises
• Top broker gives its verdict on the Zip (ASX:Z1P) share price

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. 

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Square, and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

For years, Amazon (NASDAQ: AMZN) has felt like a must-own stock.

The company has many competitive advantages. It dominates huge industries like e-commerce and cloud computing and it’s become a necessity in modern life for many Americans, especially during the pandemic.

Indeed, buying the stock at almost any point in its history has proven a wise decision. That’s why it was a bit of a shock to see Amazon’s stock price finish down nearly 8% after a seemingly strong second-quarter earnings report. Amazon stock is fallible, it turns out.

The tech giant reported revenue growth of 27% to $113.1 billion, missing the analyst consensus at $115.1 billion. On the bottom line, the company delivered another round of soaring growth with earnings per share improving from $10.30 to $15.12, ahead of estimates at $12.22.

However, investors were focused on the company’s slowing growth as it laps the heady months of the pandemic a year ago. For the third quarter, Amazon guided to revenue growth of just 10% to 16%, which was its slowest growth guide in memory. On the bottom line, it only called for operating income of $2.5 billion to $6 billion, below the $6.2 billion it reported in the quarter a year ago.

Historically, Amazon’s guidance, especially on the bottom line, is conservative, but the forecast reveals some real challenges the company is facing. The market response also indicates that many investors thought the pandemic tailwinds would last forever, even as consumer spending priorities have clearly changed in recent months.

CFO Brian Olsavsky provided some insight on the earnings call, noting that Amazon’s revenue growth rate had hovered around 20% before the pandemic and then surged to 40% for much of the last year. By mid-May of this year, as it lapped that strong growth period and its customers began to return to their pre-pandemic routines, revenue growth fell to the mid-teens, which explains the third-quarter guidance at the same pace.

Olsavsky also warned that that pattern would continue for the next few quarters due to difficult comparisons. Beyond that, however, there’s another challenge facing Amazon.

The law of large numbers

Amazon brought in $386 billion in revenue last year, and analysts expect the company to do close to $500 billion in revenue this year. Maintaining its 20% growth rate at that level will be a difficult feat.

Growth rates tend to slow down as businesses get bigger, a rule of thumb known as the law of large numbers, and growing 20% from a $500 billion base would mean adding another $100 billion in revenue in just a year. Amazon did manage to do that last year with the help of the pandemic, but fewer than 30 companies in the U.S. generate that much in revenue annually.

Currently, Amazon is the biggest company in the world by revenue behind only Walmart, and it could pass the retail giant as soon as next year. At $500 billion, Amazon will claim 2% of the roughly $25 trillion in retail sales in the world. Eventually, its growth rate will slow, though it’s a testament to the company’s business strategy and customer-centric approach that it’s been able to grow so much so fast.

The good news

Even if Amazon’s revenue growth falls under 20%, the stock story is shifting to profit growth. After it operated near break-even for much of its history, Amazon’s high-margin businesses like Amazon Web Services, third-party marketplace, and advertising are delivering huge gains on the bottom line. Last year, the company reported $21 billion in net income, and it’s made $15.9 billion in the first half of the year. 

Its profits will ultimately determine the stock’s value, and its profit growth should remain strong, given the momentum in those high-margin businesses. If earnings per share continue to surge, the stock will follow suit as the price-to-earnings ratio has already fallen under 60.

Some perspective

Even with Friday’s sell-off, Amazon’s stock price is still up 80% from the beginning of 2020, representing a gain of close to $1 trillion in market value. That’s a remarkable accomplishment, and many of its FAANG stock peers have done the same thing. That’s a reminder that the pandemic created a highly unusual business environment, which helped Amazon and its big tech peers deliver monster results.

Amazon’s report signals that for most of them, that period is over. While there’s no reason to sell the stock following the Q2 report, investors who had expected last year’s growth rate to continue got a needed reality check. Amazon is still one of the most bulletproof stocks on the market, but it can’t continue to grow 80% every year.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Amazon investors get a reality check appeared first on The Motley Fool Australia.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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