Amazon (NASDAQ:AMZN) made two big reveals Tuesday evening, any one of which could have kicked off huge movement in Amazon stock. As expected, the company delivered a killer fourth-quarter earnings report. In fact, AMZN did even better than expected over the holidays, crushing analyst expectations. However, the company also dropped a bombshell. After 27 years, company founder and CEO Jeff Bezos will be stepping down in the third quarter.
The evening of Feb. 2 was a huge one for the company. An all-time record-setting quarter combined with the surprise, pending departure of the founder and CEO makes for a volatile combination. After digesting the news, the market reaction so far has been neutral.
Amazon stock has been on a rally for much of this year, but it’s not doing a whole lot on the day after the big news drop.
Amazon Announces a Monster Q4
We knew Amazon’s fourth quarter was going to be big. After all, it combines the increase in online shopping during the novel coronavirus pandemic with holiday shopping. And in 2020, Prime Day — Amazon’s largest single shopping event — was delayed until Q4. Added to Black Friday and Cyber Monday, that was a killer combination.
Analysts were expecting revenue of $119.7 billion (which would make it Amazon’s first ever $100 billion sales quarter). It was expected that would generate earnings per share in the $7.30 range.
Instead, the company delivered EPS of $14.09 on revenue of $125.55 billion. And the company isn’t expecting the online shopping phenomenon to slump now that Covid-19 vaccinations are underway. Where analysts had pegged first quarter revenue in the range of $95.8 billion, Amazon issued guidance for between $100 billion and $106 billion.
Jeffries analyst Brent Thill noted: “Amazon is a primary beneficiary of a permanent increase in e-commerce adoption, as unprecedented investments in logistics enhance its competitive advantage over players more reliant on 3P carriers.”
CEO Jeff Bezos to Step Down
That incredible quarter was completely overshadowed by the surprise announcement that Amazon founder and CEO Jeff Bezos will step down from his role.
However, there is no need for panic.
Bezos won’t be stepping aside until the third quarter. And even then, he will still be involved with the company as Executive Chair. More importantly, his successor as Amazon CEO has serious credibility. Andy Jassy joined Amazon shortly after its 1997 IPO, and has spent the past two decades building Amazon Web Services (AWS) from the ground up.
The new CEO is an Amazon long-timer, and the person who has led the company’s most profitable division. In Q4, AWS accounted for roughly 10% of Amazon revenue, but more than half of its operating profit. The choice bodes well for Amazon’s continued success.
Besides, we’ve seen other tech giants go on to thrive when founder/CEOs like Bill Gates and Larry Page stepped aside.
Bottom Line on Amazon Stock
I’ve been saying for months that Amazon stock was a buying opportunity in advance of its Q4 earnings. Even though AMZN has rallied for nearly 4% growth so far in 2021, I think that still holds true. And that’s despite the upcoming departure of Jeff Bezos from his role as CEO.
The company’s record-smashing Q4 earnings show that Amazon — above all other e-commerce companies — has benefited from the pandemic-induced acceleration of online shopping. It’s Amazon that will continue to reap the benefits of the lasting effect of that shift. In addition, AWS is continuing to grow and remains the driving force behind Amazon’s profits. Having the person responsible for AWS take over the CEO role signals the importance the company places on AWS.
The Amazon stock price surge I expected to see in the wake of its Q4 earnings has failed to materialize. Yet. It’s entirely possible that the announcement of Jeff Bezos’ departure and the company’s monster quarter have effectively cancelled each other out. However, I don’t think it will take long for the market to conclude that the outlook for AMZN is glowing. A price target of $4,500 for Amazon stock doesn’t seem so out of the question at this point.
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. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.