Amazon Analysts React To Q1 Earnings: Stock Sell-Off Is Short-Sighted

Amazon.com, Inc. AMZN shares traded lower by more than 7% on Friday after the company missed first-quarter earnings estimates and said it plans to spend $4 billion in the second quarter combatting the coronavirus (COVID-19).

Amazon reported first-quarter EPS of $5.01, short of consensus analyst estimates of $6.25. First-quarter revenue was $75.45 billion, beating consensus expectations of $73.61 billion.

Looking ahead to the second quarter, Amazon guided for net sales growth of between 18% and 28% but forecast net income of between negative $1.5 billion to positive $1.5 billion due to coronavirus costs.

Several analysts have weighed in on Amazon's stock.

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AMZN Is A Long-Term Winner

RBC Capital Markets analyst Mark Mahaney said Amazon’s quarter was mixed, but it will likely emerge from the crisis a long-term winner.

“We view AMZN as a Structural Winner as the COVID-crisis accelerates the shift to Online Retail and businesses deepen their transformation to Digital, benefiting AWS,” Mahaney wrote in a note.

Raymond James analyst Aaron Kessler said the combination of strong e-commerce growth, leadership in cloud services, advertising potential and an improving long-term margin profile make Amazon an excellent investment.

“Amazon delivered solid 1Q results with revenue upside driven by a further shift to eCommerce from shelter-in-place orders as well as continued AWS strength and advertising momentum,” Kessler wrote.

Stifel analyst Scott Devitt said Amazon is doing everything it needs to do to support society during this difficult time.

“We believe Amazon will be better positioned following COVID-19 given the upcoming substantial dislocation in traditional retail and long term benefit in cloud services as digital transformation accelerates,” Devitt wrote.

Shift In Behavior

UBS analyst Eric Sheridan said there was plenty for investors to like about Amazon’s numbers.

“On the back of COVID-19 causing a global shift in consumer and enterprise behavior, we see AMZN's Q1'20 earnings report (& fwd Q2'20 guidance) as an across the board beat vs expectations (topline) and fears (margin volatility),” Sheridan said.

KeyBanc analyst Edward Yruma said Amazon’s first-quarter numbers and second-quarter guidance highlight just how essential the company is.

“Investments in 1-day shipping capabilities have been redeployed to help increase capacity, and the 60% increase in grocery delivery capacity has still not kept pace with demand,” Yruma wrote.

Wedbush analyst Michael Pachter said a slower-than-anticipated removal of shelter-in-place orders could drive upside to Amazon’s second-quarter guidance.

“Should the pandemic limit the opportunity for consumers to shop in stores, we think Amazon could deliver revenues well above the high end,” Pachter wrote.

Lesser Of Two Evils

Credit Suisse analyst Stephen Ju said the COVID-19 expenses that rattled the stock are potentially the lesser of two evils for Amazon.

“Up to $600mm for cleaning supplies and protection equipment as well as $300mm in testing was not anticipated, but we note that the alternative is the potential shut down of fulfillment centers due to rising illness, which will be an even greater value-loss event if Amazon is forced to turn away the rising demand to the competition,” Ju wrote.

Oppenheimer analyst Jason Helfstein said Amazon is making big bets on its customers and sacrificing near-term profits for long-term market share gains.

“ROI of this $4B will become apparent in 4Q and 2021 if AMZN is able to accelerate consumer adoption of its services,” Helfstein wrote.

Bank of America analyst Justin Post said the outbreak has created unprecedented demand and challenges for Amazon.

“However, we see strong demand in grocery, widespread discovery of Prime benefits and potential that AMZN could have generated $5.0bn+ in 2Q profit ex-COVID as positives,” Post wrote.

Heath Care Opportunities

MKM Partners analyst Rohit Kulkarni said COVID-19 could push Amazon more into the health care business.

“Perhaps Amazon's experience with creating new processes and products for combating a pandemic might usher it into solving America's healthcare problems,” Kulkarni wrote.

Tigress Financial analyst Ivan Feinseth said AWS growth is one of many reasons to buy Amazon stock on the dip.

“Amazon Web Services (AWS) revenue increased 33% Y/Y reaching $10.2 billion as it continues to dominate the cloud services industry,” Feinseth wrote.

Amazon Ratings And Price Targets

• RBC Capital Markets has an Outperform rating and $2,700 target.
• Raymond James has an Outperform rating and $2,525 price target.
• Stifel has a Buy rating and $2,600 target.
• UBS has a Buy rating and $3,000 target.
• KeyBanc has an Overweight rating and $2,700 target.
• Wedbush has an Outperform rating and $2,750 target.
• Credit Suisse has an Outperform rating and $2,760 target.
• Oppenheimer has an Outperform rating and $2,700 target.
• MKM Partners has a Buy rating and $2,525 target.
• Bank of America has a Buy rating and $2,600 target.

Amazon's stock traded around $2,292 per share at time of oublication.