There’s a line from the Broadway mega-hit Hamilton that’s stuck in my head as I wait for Amazon (NASDAQ:AMZN) to report earnings after the closing bell today: “In the eye of the hurricane there is quiet, for just a moment. A yellow sky.”
There is a quiet now. Mostly from analysts who can barely wait for it. Big things are expected.
The official earnings estimate is $6.31 per share. But the “whisper number,” the hope, is for $6.84. Revenue is expected to be $73.4 billion. That’s a lot of Hamiltons.
It means earnings should be even better than during Christmas 2019, with revenue up 25% from a year ago. Shares hit an all-time high April 17 at over $2,400. They got close to that yesterday, almost touching $2,392.
While whole industries are being ripped apart by the hurricane of the pandemic, Amazon rises at its center. Founder Jeff Bezos is now worth $123 billion, his ex-wife MacKenzie another $39.5 billion.
Money and Power Rain from the Cloud
While popular imagination still thinks of money in terms of oil barons or hedge fund geniuses, economic power has moved to the cloud.
Amazon’s market cap is now $1.18 trillion. It’s still only the third-most valuable company in the world, behind Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL). The entire NASDAQ market at the end of 2019 was worth $37.5 trillion. Much of the remaining wealth is tied up in companies that either supply or use Amazon, Microsoft and Apple clouds.
Bezos now owns The Washington Post. Google is the biggest lobby in Washington. But these “Cloud Czars,” as I call them, are also a political target, which may be holding their shares back.
Missouri Republican Sen. Josh Hawley wants to lock Amazon up over its data practices. President Trump wants to close the Post Office if it doesn’t raise Amazon’s costs. (Nothing would spur growth of Amazon Logistics more than saving that money.)
Going against money has been a bad political move since the real Alexander Hamilton’s time. In 2020, the Hamiltons and the Benjamins are in the cloud.
Problems in the Quarter
Amazon hasn’t had smooth sailing in the last quarter.
Deluged with demand, the company has had to hire 175,000 new workers during the quarter.
Many of those workers are scared to death, because working in an Amazon warehouse can lead to novel coronavirus infection. So far, Amazon has simply fired the malcontents and raised warehouse pay by $2 an hour. It knows lax labor enforcement and skyrocketing unemployment will see it through. Amazon is building new warehouses as fast as it can. The company that builds and leases its warehouse space, Duke Realty (NYSE:DRE), is within $2 of its all-time high. (That would be a “Jefferson“.)
In Europe, the e-commerce giant has come under threat from both unions and regulators. The firm has seen a pushback in Germany, where unions are lobbying Amazon to come up with better social distancing measures for workers who congregate in groups before shifts. In Italy unions staged an 11-day strike following a Covid-19 outbreak at Amazon’s main logistics depot. Arguably, the most significant setback came on April 24 when a French appeals court ruled the company could only sell essential products in the country to protect the safety of warehouse workers.
“The pandemic has made Amazon essential, while also increasing its vulnerability,” Uhsa Haley, the W. Frank Barton Distinguished Chair in International Business and Director of the Center for International Business Advancement at Wichita State University, told Bloomberg. “I predict antitrust and worker-protection legislation of the kind that we saw at the turn of the last century.”
Goldman Sachs (NYSE:GS) now has a price target of $2,900 on Amazon, 20% above its current level. It sees not only its commerce revenue rising, but also its cloud and advertising revenue. It values Amazon Web Services (AWS), the cloud operation, at $800 billion by itself, about $125 billion less than all of Alphabet (NASDAQ:GOOGL).
Optimism vs. Reality for AMZN Stock
The only problem with analysts’ racing optimism on AMZN stock is that it eventually comes out ahead of reality.
Alphabet took the market up after earnings because analyst expectations were low. There was fear its ad-based business model might fail as businesses retrenched in the virus storm.
With AMZN stock, the opposite is the case. Analysts see Amazon’s retail services as essential and have set expectations accordingly.
My personal retirement account has risen to glory on the strength of Amazon. I first bought shares at about $330 each. If I were a trader, I’d be selling into the current earnings report. But I’m an investor and will take a hit if it comes. Amazon remains a core holding, a stock you own rather than one you trade.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL, AMZN, and MSFT.