‘A key beneficiary of shelter-in-place and work from home’: Here’s what 4 analysts are saying ahead of Amazon’s quarterly earnings (AMZN)

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  • Amazon is scheduled to report its second quarter earnings on Thursday after market close. 
  • Shares of Amazon are up more than 63% year-to-date, while the S&P 500 is roughly flat in the same timeframe. 
  • Here’s what four analysts are talking about before the tech giant’s earnings. 
  • Watch Amazon trade live on Markets Insider. 
  • Read more on Business Insider. 

Amazon is set to report its second quarter earnings Thursday at 5:30 p.m. ET in what is shaping up to be a major week for big tech companies. 

Tech stocks have risen to multiple fresh highs in recent weeks and led the broader market’s recovery from the pandemic meltdown in March. Shares of Amazon are up more than 63% year-to-date, while the S&P 500 is roughly flat in the same timeframe. 

Here are the key numbers, according to analysts surveyed by Bloomberg. 

Adjusted earnings per share: $5.46 expected 

Revenue: $81.22 billion 

Read more: A fund manager who’s quadrupled investors’ money since 2011 says he uses a famed 5-part psychological theory to shape his portfolio. Here are the stocks he bought for each stage.

Amazon, along with other big tech names such as Facebook and Apple, have shown strength amid coronavirus pandemic-induced shutdowns that kept consumers at home to curb the spread of COVID-19. Amazon especially has benefited as people flocked to online shopping as stores closed. 

In the first quarter, Amazon revenue surged 26%, beating analyst expectations, but earnings per share fell as uncertainty from the pandemic led to higher expenses.

Amazon’s earnings release comes one day after CEO Jeff Bezos gave testimony at a historic congressional hearing concerning tech antitrust issues.

Here’s what four Wall Street analysts are talking about ahead of the company’s earnings release. 

1. Jefferies: Amazon is “a key beneficiary of shelter-in-place and work from home”

Price target: $3,800

Rating: Buy 

“The stock is up ~30% since reporting earnings last quarter as the company is collectively viewed as a key beneficiary of shelter-in-place and work from home,” wrote Brent Thill in a July 19 note. 

“For AMZN, easy comparisons in Q2 for the retail business and tailwinds from the pandemic position the company for strong sales growth,” said Thill. “Our overall Q2 sales estimate represents 28% y/y growth and is 1% above consensus, driven by accelerating growth in core retail.”

“We are also ~11% above Q2 consensus operating income, which is 27% below the high end of guidance despite AMZN’s historical track-record of beating guidance and its seemingly conservative outlook for $4B of primarily COVID-related costs.”

 

2. Canaccord Genuity: “eCommerce has seen significant tailwinds from the ongoing COVID-19 pandemic”

Price target: $3,300

Rating: Buy 

“eCommerce has seen significant tailwinds from the ongoing COVID-19 pandemic, with Amazon likely one of the biggest beneficiaries of this trend,” said analysts led by Maria Ripps in a Monday note. 

“The company saw a spike in demand for groceries and other household essentials during Q1 as a result of store closures and shelter-in-place restrictions, and we anticipate that this trend persisted into Q2, with other categories such as sporting goods and furniture also seeing an uptick in demand with people spending more time at home.” 

Canaccord expects total revenue growth of about 27% on the year, “as heightened demand related to the pandemic results in an acceleration of online stores growth to ~28% y/y.” It sees AWS revenue growing 34% year-over-year as cloud computing demand remains strong. 

“We forecast a ~400bps y/y contraction of consolidated operating margin, as management noted that the company plans to reinvest virtually all of its Q2 operating profit in COVID-19 related initiatives to ensure both fulfillment to its customers and the safety of its workers,” said Ripps. “We also see a deceleration of Other revenue growth to ~35% (vs. 44% in Q1) as economic uncertainty negatively impacts digital advertising budgets in the near-term.”

 

3. Cowen: “We expect strong 2Q20 results”

Price target: $3,700

Rating: Outperform 

“We expect strong 2Q20 results with Rev. & Op. Inc. above high end of guide range,” wrote analysts led by John Blackledge in a note July 13. 

“Key rev drivers include AWS, Adv., Subscription, & accelerating eCom growth (+29% y/y vs. +17% y/y in 2Q19) given cont’d COVID-19 demand surge,” said Blackledge. 

Investors will focus on “ongoing acceleration in eCommerce,” according to the note, “which we expect will remain robust in 2Q, in particular as the US faces staggered and sometimes halted re-openings that have continued into July as COVID-19 cases rise.” 

“We also expect investors to look past the 2Q investments in COVID-19 related expenses that AMZN expects could reach $4BN, including headcount, elevated wages, safety equipment, testing, and pandemic relief efforts.”

 

4. Bank of America: “Expect strong revenue upside” 

Price target: $3,280 (from $3,000)

Rating: Buy 

“We expect strong revenue upside with some gross margin pressure from a category mix shift, and profit pressure from COVID-19 factors,” analysts led by Justin Post wrote in a Monday note. 

“Given the unusual quarter with a significant uptick in demand, we expect retail revenue upside but gross margin pressure from the category mix shift and less 3P mix, offset somewhat by higher ad revenues,” said Post. 

“After Amazon appeared to put the brakes on demand in exiting Q1 (including spending less on marketing, removing item promotions on Amazon Websites, and extending delivery times), we think that operations and capacity are now much more normalized, suggesting revenue upside as capacity expectations were likely conservative,” he said. 

“In the stay-at-home environment, Amazon’s utility is higher than ever, which we expect to drive an uptick in Prime members, potentially a bright spot this quarter after mgmt. made no disclosures on Prime sign ups in Q1.”

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