Should Amazon (AMZN) Investors Be Worried About FedEx's Warning?

On September 16, FedEx  (FDX) - Get Free Report reported preliminary fiscal first-quarter earnings.

The company disclosed that revenue would come in $500 million short of its previous projections for the quarter.

According to FedEx CEO Raj Subramaniam, the company's slowdown is a harbinger of global recession.

The performance of the equities market last week supports Subramaniam’s bearishness. The S&P 500 was down 2.7% from September 9 to September 16, while the tech-heavy Nasdaq Composite dropped 5.5% and Amazon  (AMZN) - Get Free Report plunged 7.3%.

AMZN shareholders might be concerned about what the FedEx report may mean for the e-commerce titan.

However, we don't think they have anything to worry about. Here's why.

Is Amazon the Real Threat to FedEx?

After FedEx warned investors of a $500 million revenue loss, shares of the company dropped nearly 22%.

When asked if the downbeat forecast could be a sign of an imminent recession, CEO Subramaniam said, "I think so. These numbers, they don't portend very well."

According to CNN Business, global economic headwinds have affected FedEx’s business, especially in Asia and Europe.

Because shipping and logistics companies are often considered an indicator of economic health, FedEx’s revenue slowdown could be interpreted as bad mojo.

But there is another theory — a not-so-gloomy one — that explains why FedEx is losing revenue. The answer is not related to any macroeconomic condition (at least not entirely), but to competition: Amazon is taking market share away from FedEx.

Amazon's Delivery Services Eclipse FedEx

As the Amazon Maven has previously written, Amazon has doubled the size of its fulfillment network since 2019, surpassing 930 facilities in the U.S. alone. Roughly 100 of these fulfillment centers, sort centers, and last-mile delivery stations were opened as recently as September 2020.

Although Amazon’s massive infrastructure investments have depleted its cash flows, the Seattle-based behemoth has been also enjoying their results.

According to Business Insider, Amazon surpassed FedEx in terms of number of packages delivered in 2020 — 4.2 billion against 3.3 billion. As a result, JPMorgan’s Jack Atherton claimed FedEx’s revenue miss could not have been solely caused by an economic recession.

"Amazon launched free shipping software for sellers, and discounted shipping rates," Atherton wrote in a note to clients. "Amazon has piled money into its logistics capability over the past few years, to the point it has excess capacity for its own needs and is hungry for more share which is being targeted through FBA (Fulfillment By Amazon) and could be weighing on FedEx."

Is It Time to Buy Amazon?

Amazon's stock soared after the company disclosed its second-quarter earnings results, hitting $144 per share on August 16 — its highest price since April. However, the stock has been on a freefall this month, dropping to $113.

That may give you a great opportunity to buy this stock.

According to Truist Financial’s Youssef Squali, despite the challenging macro scenario, Amazon has been doing pretty well, especially considering AWS’ profitability, Prime membership’s ability to retain customers, and the growing ad business.

“We believe that the quarter is trending to the higher-end of expectations in the US, reflecting sustained demand driven by AMZN’s superior value proposition in this challenging environment,” Squali recently noted. The analyst has given the stock a price target of $180, implying a 58% upside.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)