We’re at the height of the earnings season for technology companies. And what a run it has been. On Thursday alone, you had huge beats from Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL) among others. At the end of the day, however, no star has shown brighter than Amazon (NASDAQ:AMZN) stock.
Amazon delivered phenomenal numbers on Thursday. Top line, bottom line and margins — it all impressed.
For revenues, Amazon surged 40% to $88 billion. Take a second and think about that. Amazon has been in business more than 25 years now, and is already larger than many entire countries’ GDPs.
Yet it is still throwing off incredible 40% year-over-year revenue growth. Analysts, for it’s worth, had forecast revenues of just $81 billion for the quarter. Amazon beat that by a cool $7 billion.
Converting Sales Into Profits and Cash Flow
Net income was even more surprising. The company’s income doubled from $5.2 billion for this quarter of 2019 to more than $10 billion now. As a result, quarterly earnings-per-share surged from $5.22 to $10.30.
That’d be an amazing result in any economic environment. It’s especially impressive given the pandemic. Analysts had forecast that Amazon’s earnings would fall to less than $2 per share. Instead they doubled from last year’s levels. This is even after you account for the fact that Amazon had billions of dollars in added expenses to deal with the novel coronavirus. Despite that, it still reported a huge surge in profits.
That’s not all. Its cash flows also jumped to $51 billion from $36 billion over the preceding 12 months. Free cash flows, which include heavy Covid-19 mitigation investments, also surged by double-digits. The long-running bear talking point about Amazon not making meaningful profits is rapidly disappearing. Sure, AMZN stock still looks expensive on a price-to-earnings basis. For now. When you report these sorts of figures, however, it won’t take all that long for the fundamentals to catch up to the stock price.
Beating Back the Anti-Trust Threat
The other big Amazon story is anti-trust. Jeff Bezos, along with other leading technology CEOs, appeared in front of Congress this week. Politicians asked them questions about the state of big business, with particular probes into monopolies and China’s role in the tech ecosystem.
While there were some tough questions, in general, the prevailing view is that the hearings won’t greatly damage the tech companies. Last year, the Department of Justice put out some strongly worded press releases about investigating big tech, but so far, it hasn’t amounted to much.
That said, it’s still something to keep in mind. As such, it’s a particular credit to Bezos that he highlighted the company’s social achievements this quarter.
What has Amazon done to help workers during this crisis? Quite a bit, in fact. Amazon has paid out more than $500 million in bonuses and additional benefits to employees to help deal with the pandemic. Additionally, it has hired 175,000 people so far this year, and sees the majority of those turning into permanent positions with the company.
Now, to be sure, this won’t make the company’s critics disappear forever. Amazon still doesn’t offer especially great pay or working conditions for its warehouse employees. Amazon’s practices toward smaller rivals raise eyebrows. And it’s hard to totally dismiss Amazon’s monopolistic reach in certain elements of its business. However, for the time being, Bezos has done an excellent job of keeping the regulatory risk at bay.
The Verdict on AMZN Stock
Amazon’s earnings are now out of the way. And that’s a relief for traders. There had been plenty of speculation about just how strong the business would be during the coronavirus. Sure, the stay-at-home orders have helped sales volume dramatically. But perhaps, bears had thought, all the extra costs related to Covid-19 — or a slowdown in Web Services — would sink the quarter.
That most definitely didn’t happen. Bezos blew away all the skeptics this quarter. And Amazon has now proven itself as a recession-resistant business model, adding to its allure as a stable buy-and-hold investment.
In fact, everything is coming up roses for AMZN stock investors. The anti-trust hearings in Congress this week were more bark than bite. The pandemic didn’t meaningfully damage the business. Even the slowdown in Amazon Web Services doesn’t appear to be too severe.
I have my long-term concerns about just how much farther Amazon can grow. And with the stock at all-time highs, you could get a pullback based on valuation. Give credit to the bulls though, Amazon is nailing it operationally right now. And the stock could easily hit $4,000 in coming months.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he owned FB stock.