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Buy Amazon (AMZN) Stock on Earnings Growth & E-commerce Dominance?

Benjamin Rains

Amazon AMZN shares have climbed roughly 13% to start the year, which tops the market’s comeback, but falls way behind fellow FAANG giants Facebook FB and Netflix NFLX. Therefore, Amazon stock still rests over 17% below its 52-week high.

Recent News & Overview

Reports surfaced earlier this month that said Amazon is in the midst of rolling out grocery stores throughout the country as it expands its brick-and-mortar footprint. The new stores are set to be distinct from the company’s upscale Whole Foods Market and its newer, cashierless Amazon Go stores. Amazon’s physical retail expansion, which also includes book stores, comes after decades of online retail disruption.

Amazon’s expanded grocery push likely scares Walmart WMT, Target TGT, Kroger KR, and others, who have actively expanded their e-commerce platforms and delivery offerings to better compete with the Seattle giant. And despite Amazon’s Whole Foods purchase, the company reportedly only capture roughly 3% of the total U.S. grocery market last year. This clearly leaves plenty of room for expansion, which should be especially attractive to investors with the company’s e-commerce sales set to slow—based mostly on the law of large numbers.

Nonetheless, Jeff Bezos’ firm is projected to see its share of the total U.S. e-commerce market reach 52.4% in 2019, up from 48% last year, according to eMarketer. On top of that, Amazon remains the undisputed cloud computing champion. AWS captured roughly 32% market share last year to blow away second place Microsoft’s MSFT 14%, as well as third place IBM IBM, and Google GOOGL.

Amazon is also expanding its digital advertising business and currently sits in third place in the U.S. behind only Google and Facebook. The company’s share of the online ad market is only expected to expand as more consumers start their product searches on Amazon platforms. AMZN has also expanded its pharmaceutical business to try to challenge CVS CVS and Walgreens WBA

And of course, the firm’s Prime-driven subscription business has the potential for sustained growth. The division is expected to see its revenue soar 47% to hit $4.57 billion in the first quarter of 2019, based on our NFM estimates. This would crush last quarter’s 25% jump as the company invests more heavily in Prime Video in a race for streaming supremacy against Netflix NFLX, Hulu, and soon enough Disney DIS, AT&T T, and Apple AAPL.



Outlook & Earnings Trends

Looking ahead, our current Zacks Consensus Estimate calls for Amazon’s Q1 revenue to climb 16.6% to reach $59.54 billion, with full-year revenue projected to jump 18% to touch $275.10 billion. This would represent a slowdown from Q4’s roughly 20% top-line expansion, which itself marked a significant drop off compared to Q3’s 29% climb, Q2’s 39% surge, and Q1’s 43% jump. In fact, last quarter marked Amazon’s smallest top-line expansion since 2015.

Amazon is still projected to rake in $42 billion more in 2019 than it did last year. Peeking even further ahead, Amazon’s 2020 revenue is projected to surge 17.3% above our current-year estimate to touch $322.66 billion.

At the bottom end of the income statement, the company’s outlook appears even stronger. AMZN’s adjusted Q1 earnings are expected to soar 48.6% to reach $4.86 billion. The company’s full-year earnings are excepted to climb nearly 33%. Maybe most impressively, Amazon’s fiscal 2020 EPS figure is projected to climb 48.2% higher than our 2019 estimate, in a sign that the tech giant that once neglected earnings is becoming more profitable even as it expands into new industries.

With that said, investors can see that Amazon’s earnings estimate revision activity has come in mixed recently.



Bottom Line

Amazon’s recent earnings revision trends help it land a Zacks Rank #3 (Hold) at the moment. With that said, the company rocks an “A” grade for Growth and a “B” for Momentum in our Style Scores system. AMZN stock closed regular trading Wednesday up 1.06% to $1,690.81 a share. This marked a 17.5% downturn from its 52-week high of $2,050.50 per share and gives the stock plenty of room to run.

It is also worth noting that Amazon is currently trading at 57.2X forward 12-month Zacks Consensus EPS estimates. This comes in way above the S&P 500’s 16.6X and its industry’s 40.9X average. It does, however, represent a huge discount compared to its one-year high of 170X and its 82X median. The company’s forward P/E might be a sign that it is headed into a time of more stable revenue growth and stronger earnings, akin to Microsoft and other blue-chip tech stocks.

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