Categories Analysis, Retail

Amazon (AMZN) is winning in every segment amid the health crisis

Amazon has put its online grocery customers on a waitlist due to a huge spike in demand

While most businesses are struggling to stay afloat during the coronavirus outbreak, Amazon (NASDAQ: AMZN) appears to be gaining in every segment of its business. Shares of Amazon were up 5.9% in afternoon hours on Monday. The stock has gained 17% since the beginning of the year and 21% in the past one month.

E-commerce

It is a known fact that e-commerce businesses are benefiting significantly as people stay indoors due to the restrictions brought on by the pandemic. Online purchases have burgeoned and Amazon is at the forefront of fulfilling the massive demand for groceries, home essentials, and medicines. Amazon has put its online grocery customers on a waitlist due to a huge spike in demand.   

There is no doubt that Amazon’s sales have surged massively during this lockdown period. The company’s $13.7 billion acquisition of Whole Foods has been a huge benefit in terms of helping meet grocery demands for customers during this time.

Amazon saw a 21% year-over-year increase in net sales during the fourth quarter of 2019. During this period grocery delivery orders from Amazon Fresh and Whole Foods Market more than doubled year-over-year. For the first quarter of 2020, it can be assumed that this number has increased substantially.

For Q1, the company guided for net sales to grow 16-22% to a range of $69 billion to $73 billion versus the same period last year. The high end of analysts’ estimates predict sales of over $75 billion.

Amazon is also hiring at a large scale during this difficult period, adding 100,000 jobs at its delivery and fulfilment centers. However, the company is also facing higher costs in terms of hiring, pay hikes and benefits, as well as other coronavirus-related measures being undertaken. Amazon increased its hourly pay by $2 and doubled the hourly base pay for overtime among other measures. These increased costs might hurt margins during the quarter.

Amazon Prime Video

Streaming services in general are expected to benefit in the short-term from the quarantine period as people spend more time watching movies and TV shows on digital platforms. According to a report by Statista, in March, the time spent on streaming services increased by 27% worldwide and by 24% in the US.

Amazon Prime Video can be expected to benefit from this trend. However, in the long term, if new content creation faces more delays then this could impact streaming services negatively and cause a drop in subscriptions.

Amazon Web Services (AWS)

Amazon’s cloud business AWS is also doing well at this time. In the fourth quarter, AWS sales grew 34% year-over-year and accounted for 12% of total revenue. Some of AWS’ customers include Netflix (NYSE: NFLX), Facebook (NYSE: FB) and Twitter (NYSE: TWTR) and these companies have seen a rise in their usage. Improved services to support the infrastructure of its customers will prove beneficial for AWS.

According to hostingtribunal.com, the global public cloud computing market is set to exceed $330 billion in 2020. AWS holds a 32% share in the cloud industry market and is the leader thus paving the way for further growth.

The majority of analysts are bullish on Amazon’s stock which has a strong Buy rating and an average 12-month price target of $2,429.97. This represents a 12% upside from the current price. The highest range is $2,700 which suggests a 24% upside from the current level. In short, Amazon’s future appears bright in this grim scenario.

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