As Jeff Bezos’ term as CEO winds down, Amazon (NASDAQ:AMZN) stock continues to march upward.
Back in February Amazon announced that Bezos would be transitioning out of his role as CEO in Q3. He’ll assume the title of Executive Chair at that time, and Andy Jassy will become CEO.
Fundamentally, it means that an end to an era is approaching. That has the market wondering whether Amazon will see some degree of decline.
I’ll start by saying that I believe very little will change. That’s a good thing.
Maybe Amazon will institute a dividend, or perhaps it’ll undertake a stock-split. Whether it does either, neither, or both of those things, Amazon is still a worthwhile investment.
Recent Results and AMZN Stock
Even though Jeff Bezos is easing away from his CEO role, Amazon continues to perform incredibly well. In Q1 ‘21, net sales at Amazon increased by 44% year-over-year, to $108.5 billion.
Walmart (NYSE:WMT), by comparison, netted $134.6 billion: A larger number in absolute terms, yet its 8.7% revenue increase was much lower than Amazon’s 44% increase.
If that comparison makes you uneasy from an investment perspective (although it shouldn’t) then consider another often made comparison. That between Chinese ecommerce giant Alibaba (NYSE:BABA) and Amazon.
Amazon’s Q1 2021 revenues of $108.5 billion are 50.69% greater than the $72 billion the Amazon of China made in all of fiscal year 2020.
Further, at Amazon, income in Q1 reached $8.1 billion, more than triple what it was a year prior.
So ignore bearish sentiment dictates that somehow Amazon’s best days are behind it. It really is overall a company that just keeps winning.
Amazon has shown its value in our limited contact, pandemic-ridden world. One might expect that it simply can’t continue to exceed expectations.
However, it keeps proving that it can. Analysts expected Amazon to report $104 billion in revenues in Q1, it beat the estimates with that $108.5 billion figure.
When you look at AMZN stock and its $3,300 price tag it could easily give you pause. But then its important to consider the company’s track record and Wall Street’s opinion of it.
Just about every one of the more than 50 analysts with coverage of Amazon consider it a buy. Their average price target indicates 27.3% upside.
That should lend a fair amount of confidence to anyone on the fence about buying Amazon shares.
Is Amazon’s Growth Pandemic Bound
The short answer is no. Amazon was huge back in 2016, recording $135 billion in revenues. Those revenues more than doubled by 2019 when it recorded $280 billion in sales.
In 2020 revenues hit $386 billion. Yes, that was a revenue increase that was historically out of line. And yes, it was due to the pandemic. So it’s rational to believe that in the wake of the pandemic that sales will naturally return to a more average growth rate.
So maybe revenues will increase by $50 billion annually (2018-2019), and not by $100 billion as in 2019 to 2020. But so what?
I’d be astounded if Amazon doesn’t find a way to take the windfall proceeds from the pandemic and turn them into a future business that grows that massive top line.
Amazon states that its focus is on long-term sustainable growth in free cash flows. Judged by that metric, Amazon again does well. For the trailing twelve months ended March 31, free cash flows increased to $26.4 billion from $24.3 billion in the corresponding previous period.
Takeaway
Amazon remains a strong buy despite its sticker price. Worry less about the upcoming CEO transition and focus on its sustained growth outside of these extraordinary times.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
