When you consider how much our day-to-day lives have changed because of social distancing and the novel coronavirus, it’s remarkable how much Jeff Bezos’ e-commerce giant, Amazon, (NASDAQ:AMZN) stands to benefit. What does that mean for Amazon stock?
This may very well be the year where Amazon services go from merely a convenience to a necessary way of life.
Amazon gives you two ways to play the coronavirus. First, there’s its dominance in e-commerce, including everything from household items to groceries.
Then there’s the increased use of the internet. Most of the country is working from home, doing online classes, or streaming video because we’re all shut-ins at this point. Amazon’s got you covered there, as well.
Let’s take a good look at how Amazon fits into today’s pandemic lifestyle before AMZN reports earnings on April 30.
Amazon Stock at a Glance
You wouldn’t guess that the economy is in a free fall just by looking at Amazon’s stock chart. Amazon stock is up 28.5% so far this year – and that includes a 42% gain since mid-March. Meanwhile, the S&P 500 is down more than 5% in 2020.
Boasting a market capitalization of about $1.2 trillion, the only thing not to like about AMZN stock is its frothy price-earnings ratio, which measures share price versus annual net income. Amazon’s P/E is 103.3, and its forward P/E is 83.3, compared to the S&P 500’s P/E of 20.3.
So yeah, Amazon is expensive. But look at what you get!
For the fourth quarter of 2019, Amazon reported revenue of $87.4 billion, net income of $3.3 billion, and earnings per share of $6.47, all big jumps from the previous year.
Analysts expected Amazon to report $86.01 billion revenue and EPS of $4.04.
Looking ahead to this week’s earnings, Amazon guided for first-quarter earnings of $69 billion to $73 billion, versus revenue a year ago of $59.7 billion. Wall Street, meanwhile, is expecting earnings of $72.95 billion, which would be a 22% increase over last year.
Amazon’s E-Commerce Dominance
E-commerce sales are through the roof these days because people aren’t going to brick-and-mortar stores to do much of their shopping. In fact, I wouldn’t be surprised if the coronavirus forced some of those legacy stores to shutter for good.
But Amazon will be one of the companies still standing, and sales are better than ever. The company announced plans to hire 175,000 more factory and distribution workers around the country to help fulfill orders.
It’s so busy that it warned customers that two-day Amazon Prime deliveries would be delayed in some cases while it fulfills critical orders. And it suspended its Amazon Shipping program in the U.S. that competed with FedEx (NYSE:FDX) and UPS (NYSE:UPS) so it can focus on its own orders.
Amazon, which purchased Whole Foods in 2017 for $13.7 billion, is also delivering groceries. That’s been so successful that the company was forced to put new grocery customers on a wait-list so it can service its current customers.
That’s a great problem to have if you’re Jeff Bezos.
The longer the pandemic lingers, Amazon’s new customers will become more accustomed to shopping on Amazon’s platform, and will be less likely to return to their old brick-and-mortar habits when this is all over.
And that may be a while. There are concerns that we could be practicing social distancing for many more months since there’s no vaccine for the Covid-19 virus yet.
AWS Gives Amazon a Leg Up
Now let’s look at how our use of the internet is changing during the pandemic.
Sure, Amazon Prime Video’s streaming service is critically acclaimed and competes with Netflix (NASDAQ:NFLX), Hulu, Disney (NYSE:DIS) Plus and HBO Max. But I’m more interested in Amazon Web Services (AWS) and the dominance it gives AMZN online.
AWS is used in nearly 200 products and services, and does everything from analytics to business applications and machine learning. AWS also controls Internet of Things (IoT) devices and is used by many companies to run IT operations.
In the fourth quarter of 2019, AMZN got nearly $10 billion in revenue from AWS, which was an increase of 34% from the previous year. Investors will be looking at how much AWS grew when Amazon reports first-quarter results.
One item of note: AWS represented only 12% of Amazon’s total fourth-quarter revenue, but more than 67% of the company’s operating income from the quarter was attributed to AWS.
The Bottom Line on Amazon
There’s a lot to like here about Amazon stock, but Wall Street will also have high expectations when Bezos leads the post-earnings call with analysts.
Investors want to see Amazon beat expectations, but they’re also going to be keying in on any information about how the pandemic will affect Amazon in the second quarter and the rest of the year.
If investors don’t like what they hear about 2020 guidance, it’s possible that AMZN will take a slight dip following the April 30 report. Don’t let that bother you.
Amazon continues to be a “strong buy” and carries an “A” rating in my Portfolio Grader, as it has all year.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.