Alongside the rest of the market, shares of e-commerce juggernaut Amazon (NASDAQ:AMZN) have fallen off a cliff in February on coronavirus fears. From its February highs, Amazon stock is now down 12% — close to its biggest correction in the past year.
But, let’s zoom out here. At the end of January, Amazon delivered strong fourth-quarter numbers which smashed revenue and profit expectations, and included a healthy guide. The e-commerce business continues to capitalize on a shift towards online shopping, the cloud business continues to dominate the enterprise cloud infrastructure market and the ad business has tremendous upward momentum. Moreover, revenues and profits are running higher at an impressive pace.
So, has anything about that changed because of the coronavirus outbreak?
For a quarter or two, yes. Maybe consumers shop less, or maybe enterprises spend less on their cloud migrations. And maybe merchants stop advertising as much on Amazon. But all of those impacts will be short-lived, because come April or May, warmer weather coupled with strict quarantining, swift government responses and a potential vaccine will ultimately kill this outbreak. And in turn, Amazon will promptly get back to firing on all cylinders.
So, big picture, don’t let near-term headwinds scare you out of a long-term winner like Amazon stock.
Coronavirus Is Ephemeral
The coronavirus outbreak is a big and scary thing that’s getting worse and worse every day. But, it’s just an epidemic. And, like all other epidemics before it over the past fifty years, it will pass.
Over the next few months, it will start to warm up across the globe. Historically, warmer weather has killed or at least significantly slowed influenza outbreaks. The same should be true this time around, so warmer weather in April and May will help slow and kill the coronavirus outbreak globally.
At the same time, governments across the globe have been swift in their responses to the outbreak, and have been largely successful in implementing strict quarantining efforts to thwart further spread. In China, such quarantining efforts worked. The number of reported new cases in China has been steadily dropping every day, and it appears the worst of the spread over there is done. A similar dynamic should play out globally.
There’s also a lot of promise on the vaccine and treatment front. Gilead (NASDAQ:GILD) has developed an anti-viral treatment called remdesivir which appears to actually work in treating coronavirus symptoms. That drug is being more widely administered in China. The U.S. has also sounded a positive tone about getting a vaccine to market fairly soon.
Collectively, this virus is big and scary, but it won’t last very long. Maybe a few more months, if that, and the number of people globally who get severely sick from it will be very low.
Amazon Stock Will Get Back to Winning
Once the coronavirus outbreak does pass, Amazon stock will return to its winning ways.
On the e-commerce front, I don’t even see Amazon’s business slowing all that much during the outbreak. Consumers globally remain very healthy, supported by strong labor conditions. They will likely continue to shop, and not just at physical stores. They will do all their shopping online, and that’s actually a tailwind for Amazon — who owns the e-commerce market in the U.S. and globally.
However, Amazon Web Services will slow over the next few months. Businesses invest more when the global economic and political environments are stable, but invest less when they are not. The coronavirus has injected tremendous instability into the global picture for the time being. So, as long as that instability hangs around, businesses will invest less in their cloud migrations, and Amazon Web Services will take hit.
But, that’s all short term in nature. Come April or May, the virus will be old news, and the global economic and political picture will stabilize. Businesses will start spending again, perhaps even more-so than ever before because of new fiscal stimulus from central banks. And Amazon’s cloud businesses will re-accelerate.
Furthermore, it’s lather, rinse, repeat for the ad business. Ad spending globally will take a hit amid increasing investment uncertainty, but such uncertainty won’t last. Once it passes, ad spending trends will rebound, and Amazon’s ad business will get its groove back.
Overall, Amazon will take a hit in February and March. But, by the spring, the company will be back to firing on all cylinders.
Bottom Line on Amazon Stock
Amazon stock is a long term winner, and the coronavirus outbreak is a near-term issue. Don’t let near-term issues scare you out of long-term winners.
Instead, embrace the weakness, watch critical support levels and follow the headlines. Once the stock starts to show support and the headlines get better, buy the dip with both hands.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by TipRanks, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, Luke Lango did not hold a position in any of the aforementioned securities, but may initiate a long position in AMZN within the next 72 hours.
