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Is Amazon about to surprise Wall Street?

·Anchor, Editor-at-Large
·3 min read
In this article:
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If UPS’ impressive fourth quarter earnings report Tuesday morning is any indication, then its key customer Amazon could nicely surprise Wall Street with its earnings after the closing bell.

The logistics giant — which relies on Amazon (AMZN) for about 11% of its annual sales — blew away analysts’ sales and profit estimates. Each UPS business segment saw better than expected sales as people globally ordered holiday gifts online amid the COVID-19 pandemic.

Revenue at UPS’ (UPS) domestic and international businesses surged 17.4% and 26.8% year over year, respectively. Both segments notched improvement in profit margins versus a year ago.

“There has been a steep change in the demand patterns with e-commerce sales reaching about 21% of total retail sales. We don’t think that’s going to change as we look forward. So we would expect to see continued penetration in our business to consumer business,” UPS CEO Carol Tomé told Yahoo Finance Live on Tuesday.

UPS shares rose nearly 4% by early afternoon trading on Tuesday.

The worst-performing FAANG stock

Oddly, Amazon’s stock price doesn’t appear to reflect the strong potential for a big fourth quarter and upbeat outlook.

Amazon shares have gained a paltry 5.6% over the past six months, lagging the S&P 500’s 17.5% gain and Nasdaq Composite’s 27% advance. The stock has been the worst-performing member of the FAANG (Facebook, Amazon, Apple, Netflix, Google) cohort in the past six months, according to Yahoo Finance Premium data.

CEO and Director of United Parcel Service, Carol Tome, speaks prior to US President Donald Trump speaking on the Rebuilding of America's Infrastructure in Atlanta, Georgia, on July 15, 2020. (Photo by JIM WATSON / AFP) (Photo by JIM WATSON/AFP via Getty Images)
CEO and Director of United Parcel Service, Carol Tome, speaks prior to US President Donald Trump speaking on the Rebuilding of America's Infrastructure in Atlanta, Georgia, on July 15, 2020. (Photo by JIM WATSON / AFP) (Photo by JIM WATSON/AFP via Getty Images)

“Amazon was likely a primary beneficiary of an acceleration in e-commerce growth during Q4 as investments in logistics enhanced its competitive advantage over players more reliant on 3P carriers. While a strong holiday season is a positive indicator for 4Q20 and 2021, tough comps remain the key debate for the stock,” Jefferies analyst Brent Thill said in a note explaining the stock’s recent weakness.

But if Amazon delivers big on its earnings day, it could easily reawaken the bull case on the stock. That case is rooted in increasing retail dominance amid the push to online shopping and strength in Amazon Web Services (AWS).

“We believe Amazon's retail business, globally, remains healthy, with a robust Prime Day in October helping support strong revenue growth and margin improvement in the retail business (North America and International retail margins were both positive in 3Q); meanwhile, we continue to believe the AWS business is in the relatively early innings of its growth potential and likely to benefit in coming quarters as companies look to accelerate their shift to the cloud,” wrote Guggenheim Securities analyst Robert Drbul ahead of Amazon’s earnings release.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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