The Dow, the S&P 500, and the Nasdaq all tumbled again Friday, driven once again by heavy late afternoon selling. All three major U.S. indexes are down over 30% from their mid-February highs as the coronavirus slows economic activity
Most of the market has been hit hard and Amazon AMZN stock has fallen over the last month. However, the company’s core businesses, e-commerce and cloud computing, seem tailor-made to withstand the current market conditions.
Apple AAPL helped warn Wall Street on February 17 that the spreading coronavirus was going to hurt its revenue growth in China. Since then, things have changed dramatically, as the novel coronavirus spreads around the world.
Governments and people have taken measures to “flatten the curve.” The Fed also cut its benchmark interest rate to near zero and it plans to ramp up bond buying as it tries to boost liquidity. On top of that, businesses, from Nike NKE to Apple have closed their storefronts amid the social distancing push.
The Seattle giant, meanwhile, announced earlier in the week its plans to hire an additional 100,000 employees in the U.S. The move comes as millions of people stay inside, which would get even worse as California, New York, and other states start to impose stricter stay at home rules.
Last quarter, Amazon’s core e-commerce business, which incudes online store sales and its third-party seller services, accounted for around 72% for total fourth quarter revenue. Its Prime-heavy subscription revenue accounted for roughly 6% of quarterly sales, while its AWS cloud computing business made up nearly 12%.
Plus, Amazon’s fastest growing segment in Q4 was its digital advertising-heavy “Other” unit. This division jumped 41% as it competes against Google GOOGL and Facebook FB. Clearly, Amazon’s diverse portfolio seems well equipped to outperform the broader economy, if not thrive, during the coronavirus and beyond.
Amazon failed to gain much momentum in 2019, unlike Apple, Microsoft MSFT, and other tech giants. The stock did pop late last year into February. AMZN shares are now down 12% in the last month. But this compares favorably to the S&P 500’s roughly 30% drop.
Amazon stock closed regular trading Friday down around 15% off its 52-week highs. On top of that, AMZN is trading at 2.7X forward 12-month Zacks sales estimates. This marks a discount against its own one-year high of 3.4X and 2.9X median. It also helps put Amazon right in line with the S&P 500’s average and well below Alibaba’s BABA 4.7X and Apple’s 3.6X.
Investors should also note that Amazon spent heavily to reduce Prime shipping to one-day, down from two. The move was made to help fight off the likes of Target TGT and Walmart WMT. Looking ahead, our Zacks estimates call for Amazon’s fiscal 2020 revenue to jump over 19% to reach $334.47 billion.
Then its 2021 sales are expected to climb another 17%, or nearly $60 billion higher to touch $391.67 billion. On the bottom end of the income statement, AMZN’s adjusted FY20 EPS figure is projected to surge 20%, with 2021 set to soar 50% above our current-year estimate.
Amazon’s earnings estimate revisions have trended more heavily positive, despite the current market conditions. This helps AMZN earn a Zacks Rank #2 (Buy) at the moment, alongside an “A” grade for Growth in our Style Scores system.
Some investors might want to wait on the sidelines for now until there are signs of a market recovery. And Amazon doesn’t pay a dividend. However, there are some signs that the worst part of the stock market decline is already over (also read: The Market’s Worst Days are Behind Us).
And just think, Amazon also competes against Netflix NFLX and Disney DIS in the streaming TV market, which is the future of entertainment. Therefore, now might be time for longer-term investors to think about buying some Amazon stock.
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