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Buy Amazon Stock on the Dip for Big E-Commerce & Cloud Growth?

Benjamin Rains
·6 mins read

Amazon AMZN and its big tech peers have been under Washington’s antitrust microscope for well over a year. But the probe into the tech titans is hardly sure to end with anything close to a substantial shakeup, and Wall Street has highlighted its lack of concern by running up many of these stocks to new highs until the early September downturn.

Quick Antitrust Overview

Amazon, Apple AAPL, Alphabet’s GOOGL Google, and Facebook FB have essentially all come under scrutiny in Washington for their outsized impacts on consumers and various marketplaces. The e-commerce giant has faced criticism about the fact that it competes against other retailers and third-party sellers on a platform that it controls.

Amazon and CEO Jeff Bezos have highlighted that other retailers, including the likes of Target TGT also sell their own products that compete against other brands in stores and online.

The company is sure to fight back against any real legal action that might be taken. And the antitrust charge is complicated considering that Amazon has helped lower prices for consumer, while forcing the industry to stay competitive on pricing and catching up on the delivery and digital sales front.  

Built for this Economy…

The Seattle powerhouse is tailor-made to thrive in a world where consumers are stuck at home and businesses and schools work and learn remotely. Amazon topped our Q2 estimates at the end of July, with its adjusted earnings up 97% to $10.30 per share.

Its quarterly revenue surged 40% to mark its strongest top-line expansion since the first quarter of 2018. And it has hired over 100,000 new employees at a time when millions of people were being laid off.

Amazon’s online store sales jumped 48%, while third-party seller services climbed 52%. Outside of its core retail unit, its Prime-heavy subscription revenue jumped 30%. Investors should note that Amazon has reportedly accumulated over 150 million Prime members globally, with nearly 50 million added since 2018.

Amazon charges Prime members $119 a year for free shipping on many items, access to its Netflix NFLX competitor Prime Video, discounts at Whole Foods, and more.















AMZN’s memberships provide steady revenue and its growing user base showcases its longer-term strength. And let’s not forget that e-commerce only accounted for 16% of total retail sales in Q2, according to U.S. Census data, despite perfect conditions to outperform. This was up from roughly 12% in Q1 and 11% in the year-ago period and demonstrates how much more room there is for Amazon to grow.

Furthermore, the firm’s AWS cloud computing unit was already booming before the coronavirus helped spur businesses to speed up their digitalization and remote capabilities. And AMZN is set to remain a force within the industry alongside Microsoft MSFT and others—the unit climbed 29% last quarter.

Meanwhile, Amazon’s digital ad-heavy “Other” space continued to grow at an impressive clip, and the firm is currently the third-largest player in the space behind only Google and Facebook.

What’s Next?

We are only a few weeks away from the expected release of Amazon’s Q3 results, which are due out on October 22.

Zacks estimates call for Amazon’s quarterly sales to jump roughly 33% to $92.82 billion, to help lift its adjusted EPS figure by 73%. Investors should also note that the firm’s annual Prime Day sale will run on Oct. 13 and 14, instead of its regular July run, which should boost its fourth quarter sales.

Amazon’s fiscal 2020 sales are projected to surge 32% to reach $369.99 billion, to easily top last year’s 21% revenue growth and top its FY18 and FY17’s 31% sales expansion. Peeking further down the road, its FY21 sales are expected to come in another 18% or $66 billion higher.  

At the bottom end, AMZN’s adjusted FY20 earnings are projected to climb nearly 40%, with FY21 expected to come in 43% stronger. Plus, the company’s overall earnings outlook has improved significantly since before its Q2 release, as it handles the increased demand more effectively than initially anticipated.

Bottom Line

Amazon currently earns a Zacks Rank #3 (Hold), alongside “A” grades for Growth and Momentum in our Style Scores system. AMZN popped 2.4% on Monday to close regular trading at $3,199 per share, as the broader market jumped on positive news about President Trump’s health.

AMZN stock has been hovering right around its 50-day moving average for the last month and it remains about 10.5% off its early September highs, which could give it more room to run. That said, there are certainly many reasons to be cautious about the market in the near-term, given all that we don’t know in terms of change in Washington and what’s next on the virus front.

That said, those with a longer-term horizon shouldn’t necessarily try to time the market and might want to consider nibbling on Amazon at a 10% discount since it’s built for the coronavirus economy and the future. And Amazon is still up over 70% in 2020 to crush the retail sector’s 32% climb and all of its FAANG peers.

Despite its strong run, Amazon trades at a discount against the S&P 500 in terms of forward sales at 3.7X. This also comes in well below fellow pandemic high-flyers and e-commerce peers such as Etsy’s ETSY 9.6X and Shopify’s SHOP 39X, and Alibaba’s 6.8X.

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