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Category: Stock Market and Amazon
Date: 1 May 2020 Stock Price: $2474 We take a look at the 1st quarter earnings release of their 2020 fiscal year of the world's biggest online retailer and one of the biggest companies in the world in terms of market capital, Amazon. Has the group benefited from the coronavirus related lockdowns and social distancing measures implemented across the USA?
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About Amazon
Amazon is guided by four principles: customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking. Customer reviews, 1-Click shopping, personalized recommendations, Prime, Fulfillment by Amazon, AWS, Kindle Direct Publishing, Kindle, Fire tablets, Fire TV, Amazon Echo, and Alexa are some of the products and services pioneered by Amazon.
Amazon is currently one of the worlds largest companies in terms of market capital. And it forms part of the famed "FAANG" stocks. FAANG is an acronym for Facebook, Amazon, Apple, Netflix and Google.
Amazon is currently one of the worlds largest companies in terms of market capital. And it forms part of the famed "FAANG" stocks. FAANG is an acronym for Facebook, Amazon, Apple, Netflix and Google.
Overview of Amazon's 1st quarter 2020 earnings report
The numbers we are interested in (for the quarter):
- Net sales: $75.452 billion (up from $59.700 billion from the same quarter of the previous year)
- Net sales increased by 26.4% over the last 12 months
- Operating expenses: $71.463 billion (up from $55.280 billion for the same quarter of the previous year)
- Operating expenses increased by 29.3% over the last 12 months
- Net income: $2.535 billion (down from $3.561 billion for the same quarter of the previous year)
- Diluted earnings per share: $5.01 (down from $7.09 for the same quarter of the previous year)
- PE ratio of Amazon: 123
- Diluted weighted-average shares outstanding: 506 million (up from 502 million for the same quarter of the previous year)
- Cash and cash equivalents: $27.201 billion
- Cash and cash equivalents per share: $53.75
- Cash and cash equivalents makes up 2.2% of Amazon's market capital
- Cash and cash equivalents makes up 12.30% of Amazon's total assets
- Inventories: $18.857 billion
- Inventories makes up 8.6% of Amazon's total assets
- Amazon's inventories decreased by 8% over the last 12 months
- Accounts receivable: $17.836 billion
- Accounts receivable makes up 8.1% of Amazon's total assets
- Stockholders equity of Amazon: $65.272 billion
- Stockholders equity per share: $128.99
- Amazon is trading at 19.2 times its stockholders equity which is well outside the expected range of between 2 and 4 which most companies tend to trade at.
- For some perspective the average price to book value of a firm in the S&P 500 is 3.34 times. Read more about the S&P500 here
- Cash generated from operations: $3.064 billion
- Cash generated from operations per share: $6.05
Amazon's management commentary on their 1st quarter 2020 earnings
SEATTLE—(BUSINESS WIRE) April 30, 2020—Amazon.com, Inc. (NASDAQ: AMZN) today announced financial results for its first quarter ended March 31, 2020.
“From online shopping to AWS to Prime Video and Fire TV, the current crisis is demonstrating the adaptability and durability of Amazon’s business as never before, but it’s also the hardest time we’ve ever faced,” said Jeff Bezos, Amazon founder and CEO. “We are inspired by all the essential workers we see doing their jobs — nurses and doctors, grocery store cashiers, police officers, and our own extraordinary frontline employees. The service we provide has never been more critical, and the people doing the frontline work — our employees and all the contractors throughout our supply chain — are counting on us to keep them safe as they do that work. We’re not going to let them down. Providing for customers and protecting employees as this crisis continues for more months is going to take skill, humility, invention, and money. If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small. Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe. This includes investments in personal protective equipment, enhanced cleaning of our facilities, less efficient process paths that better allow for effective social distancing, higher wages for hourly teams, and hundreds of millions to develop our own COVID-19 testing capabilities. There is a lot of uncertainty in the world right now, and the best investment we can make is in the safety and well-being of our hundreds of thousands of employees. I’m confident that our long-term oriented shareowners will understand and embrace our approach, and that in fact they would expect no less.”
“From online shopping to AWS to Prime Video and Fire TV, the current crisis is demonstrating the adaptability and durability of Amazon’s business as never before, but it’s also the hardest time we’ve ever faced,” said Jeff Bezos, Amazon founder and CEO. “We are inspired by all the essential workers we see doing their jobs — nurses and doctors, grocery store cashiers, police officers, and our own extraordinary frontline employees. The service we provide has never been more critical, and the people doing the frontline work — our employees and all the contractors throughout our supply chain — are counting on us to keep them safe as they do that work. We’re not going to let them down. Providing for customers and protecting employees as this crisis continues for more months is going to take skill, humility, invention, and money. If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small. Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe. This includes investments in personal protective equipment, enhanced cleaning of our facilities, less efficient process paths that better allow for effective social distancing, higher wages for hourly teams, and hundreds of millions to develop our own COVID-19 testing capabilities. There is a lot of uncertainty in the world right now, and the best investment we can make is in the safety and well-being of our hundreds of thousands of employees. I’m confident that our long-term oriented shareowners will understand and embrace our approach, and that in fact they would expect no less.”
Financial Guidance
The following forward-looking statements reflect Amazon.com’s expectations as of April 30, 2020, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic conditions and customer spending, world events, the rate of growth of the Internet, online commerce, and cloud services, and the various factors detailed below. This guidance reflects our estimates as of April 30, 2020 regarding the impact of the COVID-19 pandemic on our operations, including those discussed above, and is highly dependent on numerous factors that we may not be able to predict or control, including: the duration and spread of the pandemic; actions taken by governments, businesses, and individuals in response to the pandemic; the impact of the pandemic on global and regional economies and economic activity, workforce staffing and productivity, and our significant and continuing spending on employee safety measures; our ability to continue operations in affected areas; and consumer demand and consumer spending patterns, as well as the effects on suppliers, creditors, and third-party sellers, all of which are uncertain. This guidance also assumes the impacts on consumer demand and spending patterns, including impacts due to concerns over the current economic outlook, will be in line with those experienced during Q2 to date, and the additional assumptions set forth below. However, it is not possible to determine the ultimate impact on our operations for the second quarter, or whether other currently unanticipated direct or indirect consequences of the pandemic are reasonably likely to materially affect our operations.
Second Quarter 2020 Guidance:
The following forward-looking statements reflect Amazon.com’s expectations as of April 30, 2020, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic conditions and customer spending, world events, the rate of growth of the Internet, online commerce, and cloud services, and the various factors detailed below. This guidance reflects our estimates as of April 30, 2020 regarding the impact of the COVID-19 pandemic on our operations, including those discussed above, and is highly dependent on numerous factors that we may not be able to predict or control, including: the duration and spread of the pandemic; actions taken by governments, businesses, and individuals in response to the pandemic; the impact of the pandemic on global and regional economies and economic activity, workforce staffing and productivity, and our significant and continuing spending on employee safety measures; our ability to continue operations in affected areas; and consumer demand and consumer spending patterns, as well as the effects on suppliers, creditors, and third-party sellers, all of which are uncertain. This guidance also assumes the impacts on consumer demand and spending patterns, including impacts due to concerns over the current economic outlook, will be in line with those experienced during Q2 to date, and the additional assumptions set forth below. However, it is not possible to determine the ultimate impact on our operations for the second quarter, or whether other currently unanticipated direct or indirect consequences of the pandemic are reasonably likely to materially affect our operations.
Second Quarter 2020 Guidance:
- Net sales are expected to be between $75.0 billion and $81.0 billion, or to grow between 18% and 28% compared with second quarter 2019. This guidance anticipates an unfavorable impact of approximately 70 basis points from foreign exchange rates.
- Operating income (loss) is expected to be between $(1.5) billion and $1.5 billion, compared with $3.1 billion in second quarter 2019. This guidance assumes approximately $4.0 billion of costs related to COVID-19.
- This guidance assumes, among other things, that no additional business acquisitions, investments, restructurings, or legal settlements are concluded.
Amazon (NASDAQ: AMZN) stock price history
The image below, obtained from Google, shows the stock price history of Amazon (NASDAQ: AMZN) over the last 5 years. And it's been a amazing time for Amazon (NASDAQ: AMZN). 5 years ago the stock was trading at around $423 and its currently trading at $2474.. That's a impressive return of 484.9% over the last 5 years.
The stock of Amazon is trading at a closer to its 52 week high of $2475 than it is to its 52 week low of $1626.03 which to us its an indication that the short sentiment and momentum of Amazon is very positive.
The stock of Amazon is trading at a closer to its 52 week high of $2475 than it is to its 52 week low of $1626.03 which to us its an indication that the short sentiment and momentum of Amazon is very positive.
Recent google searches for Amazon stock price and AMZN stock price
The graphic below shows the trend in searches for Amazon stock price and AMZN stock price over the last 12 months in the United States as obtained from Google Trends. It shows a significant spike in searches for Amazon stock price in the middle of March 2020. This coincides with significant decline in their stock price due to global markets sell offs triggered by the coronavirus pandemic and its impact on global economic growth
Recent coverage of Amazon Corporation
The extract below shows recent coverage of Amazon as obtained from TheStreet.com
Amazon (AMZN) - Get Report shares fell considerably after earnings, as the tech giant beat revenue estimates, missed on earnings and said that it is spending hugely. Cloud revenue, an area of potentially accelerated growth, also disappointed. The stock fell as much as 5% in postmarket trading, after having risen 30% in the past month into earnings.
Investors were looking for the coronavirus and lockdowns environment to spur heavy spend on e-commerce from consumers and cloud services from businesses. Those two events occurred, but cloud revenue missed estimates, while Microsoft’s (MSFT) enterprise cloud sales beat estimates earlier this week.
Here were the results:
Read the full article here
Amazon (AMZN) - Get Report shares fell considerably after earnings, as the tech giant beat revenue estimates, missed on earnings and said that it is spending hugely. Cloud revenue, an area of potentially accelerated growth, also disappointed. The stock fell as much as 5% in postmarket trading, after having risen 30% in the past month into earnings.
Investors were looking for the coronavirus and lockdowns environment to spur heavy spend on e-commerce from consumers and cloud services from businesses. Those two events occurred, but cloud revenue missed estimates, while Microsoft’s (MSFT) enterprise cloud sales beat estimates earlier this week.
Here were the results:
- Revenue: $75.5B v. analyst estimates of $73.69B
- Operating Margin: 5.3% v. 5.5%
- EPS: $5.01 v. $6.23
Read the full article here
Amazon (NASDAQ:AMZN) latest stock valuation
So based on the earnings report of Amazon (NASDAQ: AMZN) what do we value Amazon (AMZN) stock at? Based on their latest earnings report our valuation models provide a target price (full value price) for Amazon stock at $1290.70 a stock (up from our 3rd quarter 2019 earnings valuation of Amazon). We therefore believe the stock of Amazon is overvalued.
We usually advise investors to look to enter a stock at least 10% below our target price (full value price) which in this case is $1290.70. So a good entry point into Amazon would be around $1161.60. We expect the stock price of Amazon to pull back to levels closer to our target price (full value price) in coming weeks and months.
We usually advise investors to look to enter a stock at least 10% below our target price (full value price) which in this case is $1290.70. So a good entry point into Amazon would be around $1161.60. We expect the stock price of Amazon to pull back to levels closer to our target price (full value price) in coming weeks and months.
Next earnings release of Amazon
It is expected that Amazon will release their 2nd quarter 2020 earnings report in late July 2020