Amazon Stock Is a Winner, But How Much Higher Can It Go?
While the major market indexes are all down roughly 10% year-to-date, Amazon (AMZN) stock is up a whopping 30%. To anyone paying attention to economic trends amid this coronavirus pandemic, this should come as no surprise. More consumers than ever are staying at home, and in turn e-commerce sales have skyrocketed.
Ahead of the Q1 earnings call this afternoon, Bezos & Co. appear to be well-positioned for solid results. Key areas of focus for shareholders include grocery sales, prime memberships, and a higher bottom line.
Since the outbreak of COVID-19, e-commerce grocery sales have been at all-time highs. From March 12-15 alone, international online grocery sales boomed 210%, and the number of orders placed has soared over 150% Y/Y. In fact, online grocery shopping is the fastest growing product category in all of e-commerce; its $20 billion in sales in 2019 is projected to nearly double to $38 billion by 2023, per eMarketer. Whereas the demand for other product types may have decreased last quarter, Amazon’s grocery sales will set record benchmarks. It will be interesting to see the company’s profit margin from this channel of revenue as these sales will be more crucial than ever to Amazon’s quarterly profitability.
Another metric worth watching when the report goes live is the number of Prime users. This number surpassed 150 million in Q4 last year, and although Amazon does not formally report this statistic each quarter, it has only increased in Q1. During this time, many existing Prime users likely placed more orders than ever as they stockpiled necessities. Plus, as people currently have excess time on their hands, taking advantage of Amazon Music and Prime Video doesn’t hurt, either. Although the current number of Prime subscribers may not be sustainable, recent new members are in a position to purchase in bulk and consume an exceeding amount of content.
The other notable metric investors should be wary of is the company’s Q1 operating expenses, and ultimately its net income. It is estimated that Amazon had to invest almost $700 million during last quarter alone in order to cover overtime and higher wage costs. Additionally, because a larger portion of its revenue is going to have come from smaller-profit-generating segments such as groceries, there is the possibility that AMZN could realize higher, yet less profitable, sales.
5-stare Monness analyst Brian White is optimistic about the company’s ability to maintain its strong performance in both consumer and financial markets, which should be reflected in today's Q1 earnings call. White is among the top 1% of all TipRanks experts and boasts an impressive 67% overall success rate. The analyst is confident that because of “how irreplaceable Amazon has proven to many during this crisis,” the company has been able to maintain multiple dominant streams of income in e-commerce and AWS.
White projects Amazon’s e-commerce sales to grow 20% Y/Y in the US and 16% internationally. Additionally, the analyst is confident that AWS will prove to be the company’s fastest growing business segment, forecasting Q1 Y/Y growth of 34% to $10.33 billion. As trends of increased digital activity persist, cloud storage through AWS will likely be a valuable consumer asset for a long time moving forward. Finally, even though Amazon’s total ad revenues may take a hit, the company is nevertheless much better positioned than social media and search engine sites with its ability to cross advertise its e-commerce products.
All in all, White rates AMZN shares a Buy along with a 12-month price target of $2,650, which implies about 10% upside from current levels. (To watch White's track record, click here)
Most analysts back White's confident take on the retail giant, as TipRanks analytics showcase AMZN as a Strong Buy. Out of 43 analysts tracked in the past 3 months, 41 are bullish, while 1 remains sidelined, and 1 is bearish. Yet, a lot of the optimism is already baked into these analysts' expectations. The 12-month average price target of $2,549 boasts potential upside of just 5% and a change from current levels. (See Amazon stock analysis on TipRanks)
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.