Amazon AMZN shares have surged over 42% since March 16, as investors clamor for stocks that seem immune to the coronavirus economic downturn. And with a business based on e-commerce and cloud computing, the Seattle powerhouse does seem tailor-made to outperform during these uncertain times.
With this in mind, let’s dive into what to expect from Amazon’s Q1 fiscal 2020 earnings results that are due out on Thursday, April 30.
Quick Earnings Outlook
Our most recent Zacks estimates, from Friday, April 24 project that overall earnings for the S&P 500 will sink -15.3% on +1.2% higher revenues in the first quarter. The outlook appears even worse in the second quarter, with earnings expected to tumble -31.5% (also read: Previewing Tech Sector Earnings).
That said, energy, transportation, autos, consumer discretionary, and other sectors are projected to take huge hits. Meanwhile, tech sector S&P 500 earnings are only expected to dip -0.7% in the first quarter.
This could be part of the reason that Amazon and other tech giants such as Microsoft MSFT have outperformed the market recently, and helped drive the comeback from the March 23 lows.
Amazon’s Pitch
Despite signs that social distancing and stay-at-home measures are working, and that governments around the world are starting to figure out how to start reopening parts of their economies, people are likely to remain largely inside. This means that Amazon’s e-commerce delivery business is likely to grow even more than it has been.
Back in March, the company announced plans to hire an additional 100,000 employees in the U.S. to deal with increased demand—which is striking as millions of Americans file for unemployment benefits. Amazon’s ability to effectively meet consumer demand during these tough times could help it separate itself from retail rivals Walmart (NYSE:WMT) WMT, Target TGT, and others, who have all ramped out their own e-commerce and delivery offerings.
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Amazon’s pitch to investors for years has been that it operates a business built for the future, and this has become crystal clear during the coronavirus pandemic.
For instance, Amazon’s core e-commerce business, which includes online store sales and its third-party seller services, accounted for around 72% for total fourth quarter 2019 revenue. Its Prime-heavy subscription revenue accounted for roughly 6% of quarterly sales, while its AWS cloud computing business made up nearly 12%.
Amazon’s fastest-growing segment in Q4 was its digital advertising-heavy “Other” unit. This division jumped 41% as it competes against Google GOOGL and Facebook (NASDAQ:FB) FB. And let’s not forget that it competes alongside Netflix (NASDAQ:NFLX) NFLX, Disney DIS, Apple AAPL, and others in the streaming TV market.
Outlook
Amazon’s Q1 fiscal 2020 revenue is projected to jump 23% from the year-ago period to $73.42 billion, based on our latest Zacks estimates. This would top Q4’s 21% top-line expansion. Peeking ahead, AMZN’s full-year fiscal 2020 sales are expected to jump over 20% to come in at $337.56 billion.
The company’s 2021 revenue is then projected to climb another 17.5% to hit $396.42 billion. These estimates are both up over the last month and compare favorably to 2019’s 20% sales expansion. And sometimes the percentage climbs don’t do Amazon justice. For example, AMZN revenue is projected to grow by $60 billion in 2021—Facebook made $70 in all of 2018.
At the bottom end of the income statement, Amazon’s Q1 earnings are expected to slip 11% to $6.31 a share. It is worth noting that AMZN’s earnings took a hit last year as it ramped up spending to reduce Prime shipping to one-day, down from two. And clearly Amazon’s costs appear to be on the rise as it hires more employees and deals with higher volumes.
Still, AMZN’s adjusted fiscal 2020 EPS figure is projected to jump 20.8%, with FY21 set to surge 46.3% above our current year estimate.
Bottom Line
Amazon’s earnings revisions have trended in the wrong direction recently, which helps it hold a Zacks Rank #3 (Hold) at the moment. Yet, AMZN shares have surged over 30% in 2020, against the S&P 500’s 13% decline. The chart above also shows that the Amazon stock began to break out after March 16.
This means that the coronavirus economic shutdown spurred Amazon stock to new highs, as investors searched for safe-havens. That said, some investors might want to wait to see how AMZN’s report and guidance shake out, amid a big week for Wall Street and tech powers.
But longer-term investors might want to consider buying Amazon because its current price could look like a steal six months or a year from now, even if it falls in the near-term.
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