Pandemic Gives Big Tech a Shot at Redemption
The COVID-19 crisis is pushing supply chains and logistics networks to their limits. Something has to give soon.
On Friday, Amazon.com (AMZN) signed an agreement with the Canadian government to distribute critical medical supplies nationally. The partnership is a big step forward for private companies.
Before the outbreak, the most innovative companies in the world were under attack. Attorney generals are swarming to regulate firms like Amazon.com, Apple (AAPL), Facebook (FB) and Alphabet (GOOGL), the parent company of Google. The belief is big tech companies are using their massive platforms to squash competitors and abuse consumer privacy.
Political movement against these companies was swift because bashing big technology companies is easy and bipartisan. Sen. Josh Hawley (R-Mo.), and Sen. Elizabeth Warren (D-Mass.) are far apart ideologically, but very in sync when it comes to their disdain for big tech. The senators wanted the companies checked, or better yet, broken up.
Ahead of the coronavirus pandemic, that outcome seemed certain. Among Washington lawmakers, momentum was growing. Painting big tech as an enemy of the people was widespread.
Politico described the wedding of unlikely political allies as an “enemy of my enemy is my friend” phenomenon.
In September 2019, Vox reported that two-thirds of Americans supported breaking up big technology companies. Although the media company has a penchant for progressive causes, the data was consistent across party affiliation. Americans blamed big technology companies for many societal ills.
Then … things changed rapidly. The pandemic came. Large tech companies began to show they could actually use their great scale for good causes.
Apple sourced and will donate 10 million masks for healthcare workers across the United States. Millions more are set to reach Europe. Facebook launched a global version of its Community Help project to pair volunteers with communities in need. The social media leader also donated $100 billion to small businesses.
Google pledged $800 million in cash and local ads to help mom-and-pop shops revamp their marketing efforts. The firm will also build new Wi-Fi access points across California and give away thousands of Chromebooks to students in need. In March, Amazon began prioritizing shipments of essential items like disinfectants and medical supplies.
All these choices show that the companies unequivocally put corporate citizenship ahead of profitability. The sincere efforts also showcased what each of these companies can do when they put their power to work for the benefit of society.
Even many media outlets began to show praise for big tech companies. For example, in a March feature story, Wired wondered if COVID-19 had killed the tech backlash.
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With people being quarantined at home, they have become dependent on Facebook to stay in touch. They are reliant on Google’s YouTube to kill time and stay up-to-date through its COVID-19 portal, which is used to gather trusted information and find government test sites. And they are utilizing Amazon.com, trusted by nearly 112-million Prime members, as their personal supply chain for food and essential supplies.
The deal between the Canadian government and Amazon.com underlines the strength of the e-commerce giant’s logistics network. According to a Reuters report, the online behemoth will arrange pickups and deliveries for high-demand medical items like face shields, masks, gloves, ventilators gowns and test kits. These items will be ferried between manufacturers, distributors and health care facilities.
It’s a big deal because it involves a G-7 country largely outsourcing logistics for critical personal protective equipment in the middle of a pandemic.
It’s a point Justin Trudeau, the Prime Minister of Canada, made clear during a nationally televised statement. The announcement lays bare the political calculation that Amazon.com is a name associated with trust and reliability. There is certainly a good reason to believe this is true.
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A Morning Consult research study found that Amazon.com was the most trusted public company in United States. It is more trusted than the police, labels on food packaging and capitalism.
Given this sentiment, the investment calculus for Amazon is strong. Shares trade at 48x forward earnings and 3.4x sales. While both metrics may seem exorbitant, they are far below historical norms and neither reflect the true potential for long-term growth.
The COVID-19 pandemic exposes investors to the reality that most consumers have known for a long time: Amazon is a well-managed business that treats customers well and is renowned for its reliability. In times of uncertainty, reliability is more important than ever.
It’s the reason the company is now being used by the Canadian government to route personal protective equipment (PPE) to healthcare workers on the front lines.
Investors should continue to use all weaknesses to buy Amazon shares.
Jon D. Markman