The news that there’s a Covid-19 vaccine on the horizon with 90% effectiveness has had a huge impact on markets. If you own an airline, cruise ship, or movie theater stock, there was suddenly hope. An end to the novel coronavirus pandemic would mean a return to normal. But what about companies like Amazon (NASDAQ:AMZN)? AMZN stock has posted massive gains this year, thanks to the pandemic-fueled boost in online shopping. Does a vaccine mean the end of the good times for the company’s shareholders?
There’s no doubt that Amazon has been one of the few winners as a result of the pandemic. You can’t argue against gains nearing 70% so far in 2020. However, AMZN stock doesn’t get its “A” rating in Portfolio Grader just because it has performed exceptionally well during the pandemic. This is a company that’s firing on all cylinders, and a stock that’s positioned for continued growth — with or without a vaccine.
AMZN Stock Was Perfectly Positioned for the Pandemic
Let’s start with the obvious. When the pandemic and lockdowns arrived this spring, few companies were better prepared to take advantage of the situation than Amazon. I don’t mean that in a predatory fashion. Amazon simply had everything in place to benefit from the rapid adoption of online services.
As an e-commerce giant, Amazon had the website, the warehouses and the logistics already in place. There were a few hiccups, of course. The company had to quickly hire 100,000 additional workers to handle the volume of orders (something it’s doing again for the holiday shopping season). There were weeks when the focus was on keeping essentials in stock, so other products saw delayed shipping. Early in the pandemic, there were issues with third-party sellers price-gouging critical supplies like hand sanitizer, disinfectant wipes and masks.
But overall, Amazon rose to the rapid increase in online shopping demand like a champ. Investors saw the results. In the first quarter, sales were up 26% year-over-year. In Q2, they were up a whopping 40% year-over-year. When the company reported Q3 earnings — despite an end to lockdowns and shoppers increasingly venturing out to stores — sales were still up 37% year-over-year.
In addition to being there for online shoppers, Amazon happens to operate one of the most popular streaming video services. And with demand for streaming video and video conferencing stressing infrastructure globally, guess who was there as the world’s largest cloud computing provider? Amazon.
AMZN stock has earned that 70% gain for this year.
Some Pandemic Benefits Will Linger
What happens when the pandemic has run its course? That question has been looming large since the news broke this week of a Covid-19 vaccine in late stage trials with a 90% effectiveness rate. Does that mean AMZN stock’s amazing run is over?
Hardly. It is going to take many months before a vaccine is approved, goes into production and is distributed to the entire population.
But vaccine aside, Amazon was already a massively successful company before the pandemic. It’s going to continue. And many of those new shoppers aren’t going away just because they will be able to freely drive to stores again. The convenience of online shopping has a habit of making converts of people. According to the 2020 Global Retail Consumer Survey, 41% of American shoppers said they expect they will do more online shopping after the pandemic than they did before it. If you look at just millennials, that number goes up to 58%.
The Bottom Line
The huge sales and revenue gains that Amazon has been posting for the last few quarters will undoubtedly slow as normalcy returns. However, that doesn’t mean growth will stop, just that the pandemic-fueled levels of growth will give way to something we’re more accustomed to, like the 21% year-over-year revenue increase in Q4 2019. And don’t forget, the eventual slowing will be at least partially offset by a winding down of additional expenses incurred by Amazon as a result of the pandemic — costs the company projects will be $4 billion in the coming holiday quarter.
The bottom line on AMZN stock? Don’t fear the arrival of a Covid-19 vaccine.
On the date of publication, Louis Navellier had a long position in AMZN. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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.