When it comes to Amazon (NASDAQ:AMZN) stock, the only question seems to be: how high can it go?
The Seattle, Washington-based e-commerce juggernaut has become the poster child for companies that have thrived during the Covid-19 pandemic that has decimated industries ranging from restaurants to airlines. Indeed, as the world shutdown this year, Amazon ramped up its operations — hiring staff, opening new warehouses and fulfilment centers and working around the clock to deliver every conceivable product direct to consumers. When the shopping malls closed, people turned to Amazon. And the results have been impressive.
Blockbuster Earnings
When it reported results for this year’s April to June quarter, Amazon announced that its earnings per share (EPS) came in at $10.30, nearly 10 times the $1.46 per share that analysts had anticipated. Revenue during the second quarter totalled $88.91 billion vs. $81.56 billion that had been expected. The company announced that its online grocery sales tripled year-over-year in the second quarter as people refrained from even going out to buy food items, and Amazon increased its grocery delivery capacity by more than 160% as a result. The main problem the company had during the quarter was trying to maintain its one and two day delivery targets given the huge spike in online orders.
However, it wasn’t only Amazon’s main e-commerce business that has been going gangbusters. Amazon’s cloud-computing unit, Amazon Web Services, reported revenues of $10.81 billion for the second quarter, up 29% year-over-year, while its advertising business generated $4.22 billion of revenue, up 41% from the same period of 2019, and subscription services, which includes revenue from Prime memberships, grew 29% annualized to $6.02 billion. Amazon is now preparing for the busy holiday shopping season, which is sure to be bigger than ever given that the company moved its popular Prime Day shopping event to the fourth quarter of this year from its typical date in July.
No surprise that AMZN stock has been on fire since the pandemic sent global stock markets crashing down in March. The company’s share price has nearly doubled (up 89%) over the past five months to $3,174.00 a share. The stock price has risen so high, so fast that many high profile people in the investment industry are calling on Amazon to follow the lead of Apple (NASDAQ:APPL) and Tesla (NASDAQ:TSLA) and split its stock. Whether company founder and Chief Executive Officer Jeff Bezos, who is now officially the world’s richest person, will split Amazon’s shares remains to be seen. But one thing is clear, Amazon is likely to remain at the front of the technology pack for the foreseeable future.
Attracting Unwanted Attention
If there’s one thing that could potentially rain on Amazon’s parade it is the fact that the company is increasingly attracting the attention of government regulators around the world, many of whom are looking into the company’s impact on competition. At the end of July, Bezos and other technology leaders testified in Washington, D.C. before the House Judiciary subcommittee on antitrust about their practices and the ways in which they stifle competition.
While the U.S. hearing proved to be more political theater than substance, it appears to be part of a growing trend of governments looking into the dominance of companies such as Amazon. Governments in Germany and Canada recently announced similar probes of Amazon, alleging anti-competitive practices. The growing view that Amazon’s massive growth and success are a bad thing is something the company will need to counter moving forward.
Another irritant facing the company is its fractious relationship with staff and accusations that Amazon does not treat employees properly. The company has come under particular criticism from employees during the pandemic, many of whom have accused Amazon of not doing enough to protect them from Covid-19.
The criticism comes despite the fact that Amazon has spent $4 billion on Covid-19 safety measures and awarded $500 million worth of bonuses to front-line workers. Plus, the company has created more than 175,000 new jobs since March and plans to bring 125,000 of those new employees into full-time, permanent positions. How the company manages employee relations could help determine whether Amazon and its CEO are viewed as villains or not.
More Growth Ahead For AMZN Stock
While government inquiries and employee complaints serve as bad publicity for Amazon, the negative attention has not dampened investor enthusiasm for AMZN stock – even at current valuations. Despite the steep price per share, large institutional investors and smaller retail investors continue to accumulate the company’s stock.
If analysts are to be believed, AMZN stock still has room to grow. Among 44 analysts who have 12-month price forecasts on Amazon, the median target is $3,700.00 per share, with a high estimate of $4,200.00. The median price target represents a potential 16% increase from the stock’s current price. Amazon stock currently carries a “buy” rating from analysts, many of whom think the shares will only become more attractive should the company split its stock.
Long-term investors who have a time horizon of five years or longer should grab AMZN shares now before they become even more expensive.
As of this writing, Joel Baglole owned APPL shares.
