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Amazon has seen its fulfillment operation strained by the surge in demand during the pandemic
Amazon.com Inc. AMZN, +2.02% became a shopping lifeline for millions during the coronavirus pandemic, which will likely fuel the e-commerce giant’s third-quarter earnings report scheduled for Thursday.
“COVID-19 and the stay-at-home response for many consumers should result in another quarter of revenue upside in Q3, notwithstanding the timing shift for Prime Day (excluding India) to Q4 from Q3,” wrote Wedbush analysts led by Michael Pachter.
Amazon hosted Prime Day in India on Aug. 6 and Aug. 7. In the U.S., Prime Day, which usually also takes place during the summer, was pushed to Oct. 13 and Oct. 14.
Amazon usually doesn’t announce sales numbers from the event, but this year said that small- and medium-sized businesses saw sales rise 60% year-over-year to $3.5 billion.
Experts consider this year’s global Prime Day, which took place across 19 countries, to be the start of the holiday shopping season.
Outside of Prime Day, consumers have been moving their shopping activity increasingly to e-commerce channels. And with well over 100 million Prime members, Amazon has benefited from that migration.
Read: These technologies allow you to shop with your friends – without leaving the house
“In total we see $2.0 trillion of value transferred between nine different industries covered by 23 BofA Global Research teams,” wrote Bank of America analysts in a report published this month. Analysts expect a $480 billion move in value from brick-and-mortar stores to online by 2025.
“We expect the key winners to be: online retail, social media, fintech, parcel delivery, logistic, real estate, paper, packaging and food delivery. The laggards will likely be: traditional retailers and retail landlords,” Bank of America said.
EMarketer expects U.S. e-commerce to rise 32.4% this year, reaching $794.50 billion.
Wedbush analysts said that as long as the COVID-19 threat is elevated, shoppers won’t be heading back to stores.
“Until testing capability, a therapeutic solution and a vaccine are made widely available, we expect demand for Amazon’s product delivery and services to remain elevated,” analysts said. “As a slight offset, we think that the lingering recession could lower overall consumer spending, but we think it is important to note that the ‘typical’ Amazon customer is above median income and less likely to be affected by unemployment than the average consumer.”
Wedbush rates Amazon stock outperform with a $3,700 price target.
See: Average holiday spend per U.S. household expected to drop 7%, Deloitte says
To meet the demand, Amazon announced on Tuesday that it plans to add 100,000 seasonal workers.
“The earlier holiday sales period, Prime Day shift, and likely share shift towards e-commerce spend from brick and mortar locations this year all position Amazon to perform exceedingly well over the holiday period,” Wedbush said.
“However, we expect to see signs of strain, with some third parties likely to shift warehousing during the holidays to other online vendors. This is a high-class problem, meaning that overall online holiday demand will set records.”
Truist Securities analysts note that Amazon has already gone on a hiring spree due to the increased orders, announcing 100,000 additional workers in the U.S. and Canada in September and more before that.
Amazon has struggled to keep pace, with average delivery times reaching more than six days in March, about three days in April, and gradually getting quicker as the months wore on. Amazon typically offers Prime members one-day delivery.
“In fact, we believe that Amazon is back to doing one-day delivery in several of its key markets,” Truist wrote in an October note. “With longer shipping times for non-essential items earlier in the year, we believe the company ceded share to other e-commerce players in the market who were able to deliver faster, a trend we believe has now abated.”
Also: E-commerce gains importance for grocery consumers most financially impacted by COVID-19
Truist rates Amazon stock buy with a $3,600 price target.
Amazon has an average buy stock rating and average price target of $3,735.81, according to 48 analysts polled by FactSet.
Here’s what else to watch for when Amazon reports:
Earnings: Analysts polled by FactSet are expecting earnings per share of $7.48 on average, up from $4.23 last year.
Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, expects EPS of $8.26.
Amazon has missed the FactSet earnings expectations in three of the last five quarters.
Revenue: FactSet analysts are expecting revenue of $92.78 billion, up from $69.98 billion last year.
Estimize is expecting revenue of $94.88 billion.
Amazon has beat the FactSet revenue consensus for the last seven quarters.
Stock: Amazon shares have gained 6.5% over the last three months, and have soared more than 76% for the year to date.
The Amplify Online Retail ETF IBUY, +0.96% has skyrocketed 87% for 2020 to date. And the S&P 500 index SPX, +0.10% is up 5.2% for the period.
Other items:
-Amazon’s advertising business has maintained its momentum, Truist analysts say. Over the last few quarters, advertising has grown 40% year-over-year.
“Our conversations with marketers indicate that sellers continue to lean in hard on Amazon, given the direct response and high intent nature of the platform,” Truist said.
-KeyBanc Capital Markets analysts note the Prime Day effort put into growing Amazon’s “ecosystem” with an emphasis on subscriptions, like Kindle Unlimited, and Amazon devices, like the Alexa-enabled Echo smart speakers.
Watch: Why retail bankruptcies won’t necessarily create a ‘retail apocalypse’
Analysts also highlight the focus on apparel and home furnishing brands.
“We view both categories as areas of relative under-penetration and where Amazon is taking steps to enhance merchandising in an effort to drive long-term share,” KeyBanc said.
KeyBanc estimates that Prime Day sales grew 45% compared with 2019.
KeyBanc rates Amazon stock overweight with a $3,500 price target.
-Amazon also has an opportunity to grow in another high-demand coronavirus category — fitness.
Consumer Intelligence Research Partners (CIRP) said the pandemic drove an increase in Prime memberships. The company launched a new service called Amazon Halo along with a fitness tracker in August.
“This could become yet another Prime membership benefit, along with free shipping, streaming video, and many others,” CIRP said. “Amazon looks like it identified yet another untapped potential Prime membership affiliation.”
-D.A. Davidson analysts say they will be watching for costs associated with COVID-19 infection among Amazon workers.
“More recently, it indicated that 20,000 frontline U.S. employees (of Amazon and Whole Foods) had confirmed cases, versus its estimate of 34,000 that could have tested positive at rates similar to the general population,” analysts said.
“With multiple signs of a resurgence in confirmed cases globally, we will be curious to see what its projected spend will be for 4Q20.”
Separately, D.A. Davidson said they will be listening for commentary about Amazon’s health care efforts, which include PillPack.
“We see Amazon exiting COVID-19 with a much larger health care related effort, which could be a long-term driver of sales and profits,” analysts said.
D.A. Davidson rates Amazon stock buy with a $3,800 price target.
