Certain numbers – especially those with lots of zeros – hold great significance for stock-market traders. Amazon (NASDAQ:AMZN) stock has teased the psychologically significant $2,000 hurdle by touching it several times since the summer of 2018. But each and every time, Amazon stock retreated not long after reaching that number.
Consequently, investors will be examining Amazon’s fourth-quarter earnings report, due to be unveiled on Jan. 30, with eager anticipation.
It will be interesting to see if e-commerce’s strong holiday season will translate to a bumper crop of profits for Amazon and its shareholders.
A Prosperous Holiday for E-commerce
It’s been well documented that the 2019 holiday season was very successful and profitable – but that online retailers, not brick-and-mortar stores. obtained the lion’s share of the proceeds. Moreover, I probably shouldn’t bother using the plural term “online retailers” since everybody knows full well that Amazon is leaps and bounds ahead of its peers; in America at least, no other online retailer comes close in terms of size, scope, market share, revenue generation, and brand-name recognition.
How strong were e-commerce sales during the holidays? I’ll let the numbers do the talking: according to the National Retail Federation, 2019 marked the fourth consecutive year of double-digit-percentage growth in online and non-store sales. The forecast for 2019 had been for growth between 11% and 14%, but the actual sales jumped 14.6% or $167.8 billion.
Personally, I tend to view this as a mixed blessing for Amazon stock. Everybody already knows that e-commerce had a blockbuster holiday season, and they’re fully aware that Amazon was largely responsible for that. Therefore, it could be argued that ultra-high expectations could set the company and the owners of Amazon stock up for disappointment when the company’s earnings figures are released.
The Experts Weigh in on Amazon’s Earnings
Even as we look ahead, let’s not forget the recent past; Amazon’s Q3 earnings weren’t exactly stellar. Specifically, analysts, on average, had expected the company’s earnings per share to come in at $4.59, while the actual result was $4.23. That was way below the EPS of $5.75 that the company posted for the same period a year earlier.
The earnings miss could be attributed to Amazon’s extreme spending habits, as the company spent a great deal on implementing and promoting its one-day shipping program. In fact, Amazon managed to spend a whopping $9.6 billion on shipping in Q3, representing a 46% year-over-year increase.
So, did the massive spending pay off in Q4, and will e-commerce’s outstanding holiday season push AMZN stock beyond the key $2,000 price point? A couple of analysts from large banks seem to think so. Bank of America analyst Justin Post, for one, recently upped his price target on Amazon stock from $2,160 to $2,330 while reiterating his “buy” rating on the shares.
J.P. Morgan’s Doug Anmuth, meanwhile, maintained his already-lofty $2,200 price target and his “buy” rating on AMZN, while his Q4 revenue estimate for AMZN is a hefty $85.9 billion. Anmuth cites “potential upside… from a strong U.S. holiday season” as a justification for his optimistic outlook . But again, I would contend that the strong holiday season is a known factor and could actually set Amazon stock up for a post-earnings decline.
The Bottom Line on Amazon Stock
So. will Amazon stock exceed 2K in the wake of the company’s results? The experts have weighed in, and of course they’re overwhelmingly bullish; Amazon is still the darling of the markets, after all. With my own capital, though, I dare not make a pre-earnings bet in light of holiday sales that shattered expectations. Expectations are much higher now, and a great winter for e-commerce might deliver a greater fall (pun fully intended) for Amazon stock.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
