- Amazon reports its first-quarter earnings on Thursday.
- Wall Street expects Amazon to report revenue growth but smaller profits than last year, as both demand and costs surged amid the coronavirus pandemic.
- Amazon’s results will give us a good look into how the coronavirus is affecting shopping behavior and the broader e-commerce industry.
- Wall Street is bullish about the quarter, pushing Amazon’s stock price up nearly 30% this year, which far outpaces the broader market.
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As more people are ordered to shelter-in-place amid COVID-19, they’re choosing to buy more things online instead of going to physical stores.
That shift in shopping behavior is expected to be a boon to the e-commerce industry. Amazon, in particular, could be the biggest beneficiary, as it accounts for roughly 40% of the US e-commerce market.
“In our view, COVID’s impact accelerates the secular shift to eCommerce (US ecom at 12% of retail sales) and Amazon is well positioned to continue taking share,” market research firm Oppenheimer wrote in a note Monday.
On Thursday, Amazon will share more insights into how exactly the pandemic is affecting its business, and the broader e-commerce space, when it reports its first-quarter financial results.
Wall Street expects sales growth to accelerate from last year, reflecting the surge in demand amid the pandemic. But that growth is likely coming at the expense of profitability, as Amazon had to increase spending on operations and focus on lower-margin products, like household items, during the quarter.
Here’s what Wall Street analysts are expecting for the quarter:
EPS: $6.32, according to analysts surveyed by FactSet, vs. $7.09 last year
Revenue: $73.03 billion, according to FactSet, vs. $59.7 billion a year ago
Amazon Web Services: $10.29 billion, according to analysts surveyed by FactSet, vs. $7.7 billion last year
All signs already point to Amazon having a strong quarter. Amazon is hiring 75,000 additional workers, on top of the 100,000 hired over the past month, to keep up with increasing demand. The company has faced a series of supply chain disruptions as sales of household items and medical supplies significantly exceeded expectations. And according to data gathered by Learnbonds, Amazon had over 4 billion unique visitors in March — more than the web traffic at eBay, Apple, Walmart, Rakuten, and Samsung combined.
Amazon stock hit record highs earlier this month, and is up almost 30% this year, far outpacing the broader market.
Here are some of the main topics that analysts expect to hear discussed on Thursday’s earnings conference call:
Implications of the pandemic: Despite the large demand increases, it’s unclear how exactly that will affect Amazon’s financials, as most of the popular essential products have low margins and are more expensive to ship. Investors also will look for any side effects from the warehouse lockdowns and worker safety issues. Analysts expect more than 20% sales increases for the first and second quarters, and profit margins to improve in the second quarter as well.
Grocery and Whole Foods growth: Many investors have been waiting for Amazon’s breakout moment in grocery, and COVID-19 may turn out to be that spark it needed, as more people are trying online grocery for the first time. Whole Foods signaled demand increases earlier this month when it put new delivery customers on waiting lists, while expanding delivery capacity by 60%. BI Intelligence estimates US online grocery penetration to reach at least 55% by 2024, even if the pandemic subsides in the coming months.
Impact on AWS: Amazon’s cloud business remains the company’s most powerful profit engine. There’s been some concerns of the COVID-19 travel restrictions potentially slowing sales activities because business customers still like to meet in person before signing large cloud contracts. But data points suggest the work-from-home policies have led to material rise in demand and usage for cloud services, according to RBC Capital.
SEE ALSO: A Wall Street analyst just put a rare ‘sell’ recommendation on Amazon’s stock due to concerns about COVID-19’s economic impact
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