ii view: Amazon expects to deliver further strong sales

Its shares rose by 76% in 2020 and are up by around 10% in 2021. We assess prospects.

Fourth-quarter results to 31 December 

• Net sales up by 44% to $108.5 billion (£78.1 billion)
• Earnings per share up 215% to $15.79
• Operating income up 122% to $8.9 billion (£6.4 billion)

Guidance:

• Expects Q2 sales of between $110 billion and $116 billion, giving year-over-year growth of 24% to 30%
• Expects operating income of $4.5 billion to $8 billion compared with $5.8 billion in Q2 2020

Chief executive Jeff Bezos said: 

“Two of our kids are now 10 and 15 years old—and after years of being nurtured, they’re growing up fast and coming into their own. As Prime Video turns 10, over 175 million Prime members have streamed shows and movies in the past year, and streaming hours are up more than 70% year over year. Amazon Studios received a record 12 Academy Award nominations and two wins. In just 15 years, AWS has become a $54 billion annual sales run rate business competing against the world’s largest technology companies. Companies from Airbnb to McDonald's (NYSE:MCD) to Volkswagen (XETRA:VOW) come to AWS. We love Prime Video and AWS, and we’re proud to have them in the family.”

ii round-up:

Online retailing mammoth Amazon (NASDAQ:AMZN) delivered yet another quarter of strong sales and earnings growth as consumers continued to shop and entertain themselves from home under the pandemic. 

Net sales and earnings per share jumped by 44% and 215% year-over-year respectively to $108 billion and $15.79 per share, easily beating Wall Street estimates closer to $105 billion and $9.50 per share. 

Sales estimates for the current second quarter of between $110 billion and $116 billion also surpassed forecasts, countering concerns for slowing sales as pandemic restrictions begin to ease. Amazon is this year moving its Prime Day sales period into June and the second quarter. 

Amazon shares rose by more than 3% in after hours US trading, leaving them up by close to 90% since virus induced market lows in March last year. Shares of eBay (NASDAQ:EBAY) have more doubled over that time while shares for Chinese online retailer Alibaba (NYSE:BABA) are up by around a third. 

There are now over 200 million Prime membership customers globally, up from around 150 million as of December 2019. Amazon’s grocery stores opened in four new regions across the USA during the period. 

Away from retailing, its clouding computing business AWS is now assisting Walt Disney (NYSE:DIS) with the expansion of its Disney Plus streaming service. Net sales for the division rose by 32% year-over-year to $13.5 billion. AWS competes with the likes of Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL) and IBM (NYSE:IBM) in courting customers to use its server banks. The division’s current head Andy Jassy to become overall chief executive in the autumn, taking over from founder Jeff Bezos.

Amazon Studios, whose content is used on its Prime video streaming service, continues to invest in diverse creators and content. The streaming business which competes against Netflix recently signed a 10-year deal to show Thursday night American football exclusively and beginning in 2023. 

The retailing mammoth announced that it is to spend over $1 billion in wage rises for more than 500,000 of its US customer fulfilment, delivery, package sortation, and specialty fulfilment personnel. 

ii view:

Amazon’s current stock market value of over $1.7 trillion is only exceeded by Apple (NASDAQ:AAPL) and Microsoft. A vast array of products and services sold in 2020 generated sales of $386 billion. Amazon has effectively become a byword for online retail. 

For investors, the rollout of vaccines could eventually see the current pandemic tailwind calming. A new chief executive is soon to take the helm. And government concerns regarding the growing dominance of tech giants cannot be ignored with a US government committee in 2020 concluding that Amazon enjoys monopolistic power.

But the core retailing business is now also accompanied by growing media and cloud businesses. Each of which are significant in their own right. A still elevated estimated price/earnings (PE) ratio suggests that analysts continue to anticipate ongoing growth, while at least two influential brokers have both raised their fair value share price targets following these latest results. In all, long-term momentum and optimism appears to remain on Amazon’s side. 

Positives

• Dominant position in online retailing
• The Amazon Web Services (AWS) business is now a major global player

Negatives

• The threat of increased regulation across many of its markets
• Subject to tech valuation concerns

The average rating of stock market analysts:

Strong buy