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The irony here is that the Amazon share has previously soared from its underlying business and disrupted retail trade in bricks and mortar. But now Covid-19 is threatening to do the same against AMZN, just before its earnings report for the first quarter of 2020.
Currently, the shares in e-commerce and the technology giant are in good shape. The investment remains one of the few bright spots in this dark period, for obvious reasons. With most states issuing protection on the ground as the coronavirus began to spread at a surprising rate, consumers had no choice but to go down.
Also, Amazon shares benefited from the almost universal implementation of social distancing. I say universal, because whether or not the government has told you to worry about the virus, people were obviously scared; Therefore, it is not surprising that companies such as Uber (NYSE: UBER) or United Airlines (NASDAQ: UAL) have seen enormous volatility.
But will this new normal translate into continued momentum for the Amazon stock? Of course, investors will cast their eyes on the underlying company’s results for clues about the health of the wider economy. On paper, covering analysts have a consensus estimate for earnings per share of $ 6.26. Forecasts range from $ 4.68 to $ 7.82. During the quarter last year, AMZN delivered a profit of $ 7.09.
On the revenue front, analysts expect the company to call $ 73.3 billion, with individual estimates between $ 70.3 billion and $ 78.6 billion. During the first quarter of 2019, Amazon generated $ 59.7 billion in premium sales.
It is fair to say that Wall Street cares more about the details and context of the results report, which I will discuss below.
Amazon Stock is facing a surprisingly tricky hedge in the first quarter
I’m not breaking new ground when I tell you that the food giant Kroger (NYSE: KR) has been one of 2020’s big winners so far. As you would expect, the pandemic shifted consumers’ emotions toward essentials, such as food, water, and nuclear material. But what happens when the urgency – provided the coronavirus disappears – subsides?
This is the question analysts will dig into for AMZN’s Q1 report. Of course, food delivery services from Amazon Fresh, together with its subsidiary Whole Foods Market, will soar. But how high sales jumps will help determine investors’ attitudes toward Amazon stocks.
Keep in mind that AMZN’s food business must jump from an already high position. In the latest earnings report for the fourth quarter of 2019, Amazon produced outstanding performance metrics in this space, with delivery orders from Amazon Fresh and Whole Foods more than doubling compared to the previous year.
So if momentum was already super strong before the corona virus, investors logically expect better results this time. But the risk is that too much hype often leads to disappointment. Therefore, you may want to be careful about playing too much on the Amazon stock before the payout.
Another point to keep in mind is the extra cost of deliveries. For example, Amazon Prime members typically have free two-hour grocery delivery to more than 2,000 U.S. locations. Although this type of immediate satisfaction delivery has largely been halted as the company struggles with the pandemic’s logistical challenges, Prime member sales appear to have increased during the outbreak, despite longer delivery times.
This seems to indicate a major change in attitudes among consumers and to avoid the holistically free cost of shopping in person for food deliveries.
But without a significant increase in subscriptions, it is difficult to say that this is entirely indicative. As consumers’ demand for noses, Americans may become more price sensitive. And it would not necessarily be bullish for Amazon shares in the short term.
Overall, I remain bullish on AMZN. As I said at the top, this is an organization that was relevant before the pandemic. While Covid-19 has been incredibly disruptive, it will not change the wholesale consumer shift from analog to digital platforms.
At the same time, I think you can be bullish on the long-term horizon and be tactical in the short term. Right now, the Amazon stock seems to be having trouble adding to the robust momentum it had earlier this month. To me, it signals that investors are optimistic but still cautious that the company meets expectations.
In addition, as Targets’ (NYSE: TGT) latest earnings report showed, retailers need to tap on catalysts other than coronavirus-powered grocery stores. If consumers only buy food, it is a big problem because such trends are not sustainable.
Thus, in my opinion, the smart step is to wait for this one. If Amazon can not match elevated expectations – and it is a clear possibility – AMZN may come down in a hurry.
Josh Enomoto, a former senior business analyst at Sony Electronics, has helped broker larger contracts with Fortune Global 500 companies. In recent years, he has delivered unique, critical insights for the investment markets, as well as for various other industries, including law, construction management and healthcare. At the time of writing, he had no position in any of the above-mentioned securities.