Delivering during crisis: Will Amazon’s share price soar on Q1 results?

When Amazon announces results on Thursday, share price investors will want to see how much the e-commerce giant has benefited from the COVID-19 outbreak. But will Amazon’s stock continue to soar post-pandemic?

There has been an explosion in demand for goods from e-commerce giant Amazon [AMZN] as people, unable or unwilling to go to bricks and mortar shops, go online to find the food, entertainment and everyday items. But has this translated into share price gains?

Amazon’s share price surged 37% from $1,689 on 16 March to $2,314 as of 28 April, is expected to report stellar first-quarter figures when it reports earnings this week.

“Jeff Bezos’ everything store proved itself ever so resilient during Q1’s COVID-19 pandemic. While the rest of the market dropped double digits, Amazon left the first quarter of 2020 in the same state in which they started the year,” Peter Garnry, head of equity strategy at Saxo Bank, recently told Money Observer.

Of course, Amazon was not exactly sluggish heading into the pandemic, with its share price already having risen by about 500% over the last 5 years. How much further can the stock go?

“While the rest of the market dropped double digits, Amazon left the first quarter of 2020 in the same state in which they started the year” - Peter Garnry, head of equity strategy at Saxo Bank

Sales frenzy

Analysts at the US investment bank Cowen were equally as effusive. “Amazon has seen an enormous increase in demand as shoppers are forced to stay home, essentially creating an extended Prime Day/Black Friday type of situation,” they wrote.

Analysts anticipate a 22% increase in sales to $73bn or, as The Guardian reported, “sales of $10,000 every second, day and night”.

Online marketplace sales are tipped to be up 19% with AWS (Amazon Web Services) sales up by a third, as a result of the higher usage of cloud-based services, apps, and streaming media during the lockdown. 

Overall profit, however, may take a hit as Amazon is having to hire thousands of new staff during the pandemic to meet the demand.

Is Amazon’s share price set to surge?

There is still a lot of positive momentum. Amazon’s full-year sales are tipped to come in at $338.5bn, a 20% increase on 2019’s $280.52. Its 2021 revenue is expected to then surge a further 16.8% to hit $395.6bn. 

Goldman Sachs analyst Heath Terry has gone further, upping his share price target to $2,900 because of the “increase in demand for Amazon’s retail, AWS and ads business and its ability to meet the challenges of this demand”.

This, he adds, will boost its long-term growth rate and make it harder to compete against.

"We believe the market continues to underestimate the long-term value of the Amazon platform," Terry said.

“We believe the market continues to underestimate the long-term value of the Amazon platform” - Goldman Sachs analyst Heath Terry

Meanwhile, 40 out of 47 analysts polled by CNN Money rate Amazon’s share price a Buy. The median share price target for the stock is $2,525.

Leo Sun, writing in the Motley Fool, points to AWS as a core driver for the company going forward. “Amazon generates most of its profits from AWS. The growth of AWS’s higher-margin business enables Amazon to expand its marketplace with loss-leading strategies including aggressive promotions, cheap hardware devices and pricey original shows to crush smaller retailers,” he says. 

Sun also talks up Amazon’s list of Alexa-enabled devices, its Prime TV offering, new cashless stores and digital advertising. “It will likely remain the top e-commerce and cloud company for the foreseeable future,” he says. “Its stock should continue rising.”

Other analysts expect more customers, particularly the elderly, will now be in the habit of ordering online and will continue to do so post-pandemic. 

Amazon share price vitals, Yahoo Finance, 29 April 2020

Workers’ rights and increased competition

But there may be bumps in the road, with increased online retail competition from giants Walmart and Target, who are upping free delivery options, and Microsoft’s Azure.

Between the fourth quarters of 2018 and 2019, Azure's market share rose from 14.9% to 17.6% whilst AWS's share dipped from 33.4% to 32.4%, according to Motley Fool.

There is also potential reputational damage from increased scrutiny over Amazon’s labour practices, such as worker safety and pay in its warehouses, its climate record and use of third-party sellers data. 

These ethical issues may become even more important to customers, suppliers and investors who are expected to be acting in a kind, community-minded manner as we all struggle through the COVID-19 outbreak together. The crisis will also have stretched its operations and supply chains – which will be problematic if an economic downturn reduces consumer demand.