Amazon's [AMZN] share price has been delivering decent returns for shareholders this year. Unsurprisingly, the coronavirus outbreak has meant that more people are now shopping online, but it’s not all positive news. More business has increased service costs, and impacted Amazon’s bottom line.
All this came to the fore in first-quarter results that saw revenues surge to $80bn but earnings expectations missed. This caused Amazon’s share price to falter so, going into second-quarter results, the big question is will Amazon's share price enjoy a post-earnings bounce or is it now overextended?
What's happening with Amazon's share price?
Amazon's share price is up 58% year to date, having been on a steady uptrend since mid-March. Over the past month, the stock has climbed almost 12%, trading just 10.3% below its all-time high (through 28 July’s close).
Amazon's YTD share price rise
When is Amazon reporting Q2 results?
Why should investors care?
Price target hike from Goldman Sachs
Goldman Sachs has raised its price target on Amazon to $3,800 from $3,000. Driving the hike was the accelerated shift in online shopping triggered by the coronavirus lockdowns. According to Market Insider, data from Facteus shows that consumer spending on Amazon's platform is up 60% since the end of April compared to the same period last year. This could see bumper numbers in Amazon's Q2 earnings, outweighing the cost of ensuring Amazon's workplaces are fit for purpose amidst the COVID-19 outbreak.
Goldman also cites AWS — Amazon's cloud computing business — as a catalyst for further growth, a segment that should benefit from more people working from home. This is another area to watch in the upcoming earnings report.
Along with Goldman Sachs, Jefferies has also given Amazon’s share price the lofty target of $3,800.
YoY rise of consumer spending on Amazon since end of April
Possible post-earnings bounce
What most shareholders will be wondering is whether there's going to be a post-earnings bounce from Amazon. Looking at past results, Amazon has missed expectations three times in the past four quarters. In Q1 2020, the online retailer delivered earnings per share of $5.01, well wide of Wall Street's expected $6.25. That saw Amazon's share price drop 7.6% the next day as traders digested the results.
However, Amazon’s share price recouped those losses in little over a week, and since posting those results, has climbed circa 31.25%. When Amazon posted Q4 2019 results on 30 January, the stock jumped 8% in a single day as Amazon thrashed analyst expectations. So, while an immediate bounce isn't a sure thing, over the mid-term Amazon's share price generally seems to gain post-earnings.
What is Amazon expected to post in Q2?
Wall Street expects Amazon to post earnings per share of $1.33, down from the $5.22 seen in the same quarter last year. Revenue is expected to come in at $81.05bn, a 27.8% surge from last year's $63.4bn.
Amazon's expected revenue - a 27.8% YoY rise
So, time to buy Amazon?
Of the 47 analysts tracking Amazon on Yahoo Finance, 15 rate it a Strong Buy and 28 a Buy. An average $2,980.85 12-month price target would see a 0.65% downside on Amazon's share price as of 28 July’s close.
Amazon still seems to be in growth mode. Its diversified sources of income and cloud computing business have been delivering solid revenue generation. With much of the world still in some form of lockdown — and the potential for a second outbreak —Amazon is being treated by many as more of a utility than a private company. This could provide further upside on Amazon’s share price.
The big question is whether we have reached peak online shopping yet, or if a longer-term shift is taking place.
|PE ratio (TTM)||143.31|
|Quarterly Revenue Growth (YoY)||26.4%|
Amazon share price vitals, Yahoo Finance, 29 July 2020