Posted in: Op-edBusiness News
Published:
May 3, 2020 4:00 PM UTC

Here’s Why You Should Ignore Jeff Bezos’ Dire Warning About Amazon’s Stock

Amazon’s record-setting rally was short-lived post-earnings, as investors came to grips with a grim warning from CEO Jeff Bezos.
  • AMZN printed a new all-time high after the company reported revenue growth.
  • Jeff Bezos said Amazon is making a massive investment relating to coronavirus expenses.
  • The CEO expects a rough ride for shareholders in the next few months.

Amazon’s (NASDAQ:AMZN) printed a fresh all-time high on Thursday after the tech giant reported first-quarter revenue of $75.4 billion, good enough for a 26% growth on a year-over-year basis. The boom in sales comes as consumers relied on the e-commerce titan to deliver essential supplies during the pandemic.

But the euphoria over the stock’s surge appears to be short-lived. AMZN got battered Friday after Jeff Bezos issued a dire warning to shareholders.

Bezos: Amazon Could Book Losses in Q2

While Amazon came out of the first quarter relatively unscathed, it doesn’t appear to be immune to the impact of the coronavirus. In an announcement, Jeff Bezos said the company plans to invest $4 billion over the next three months on coronavirus related expenses:

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.

The $4 billion spend will likely consume Amazon’s net income next quarter. The company expects operating losses to reach $1.5 billion potentially. Shares of the tech company plunged on the news.

With surging expenses, Bezos warned investors that the next few months would be a bumpy ride.

If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small… 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.

Wall Street Analysts Are Raising Price Targets

While Jeff Bezos has a gloomy outlook on AMZN’s performance in the medium term, Wall Street analysts are upgrading their price target on the stock.

JP Morgan is bullish on Amazon as the investment giant raised the target price by over 18%.

JP Morgan upgrades forecast on AMZN. | Source: Twitter

The investment giant is just part of the parade of Wall Street analysts boosting Amazon’s price target. Credit Suisse raised its target from $2,400 to $2,800, citing an increase in customer adoption in North America as brick and mortar stores suffer losses in foot traffic.

Telsey agrees with Credit Suisse’s price target of $2,800. In a report, the advisory group’s analysts wrote:

Covid-19 is likely to accelerate the change in consumers’ shopping behavior to online and small businesses’ approach to cloud computing, which should both bode well for Amazon.

There are seven other Wall Street firms lifting their targets for the tech giant. Institutional investors are bullish on AMZN, which makes the stock a great candidate for long-term investors and dip buyers.

Amazon Remains Top Bet Amid Crisis

Amazon may tumble as Bezos predicts, but the $4 billion spend puts the company in a strong position to be massively profitable after the second quarter. Even if the economy reopens, consumers will likely stick with Amazon to fulfill their basic needs. The only catalyst that can change this behavior is the development of a vaccine, which is months or years away.

Analysts expect a vaccine to be ready within the next 12 to 18 months, but there’s no guarantee. Even if someone develops a vaccine next year, there’s also the challenge of mass distributing it to billions of people, and that takes time.

Jeff Bezos probably expects that the world will be under the grip of coronavirus for the next few years, hence the massive investment. If you read between the lines, the Amazon CEO’s actions are long-term bullish for the stock.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The writer does not own shares of Amazon (AMZN).

This article was edited by Sam Bourgi.

Last modified: May 3, 2020 2:08 PM UTC

Kiril Nikolaev @kirilnikk123

Kiril is a CFA Charterholder and financial professional with 6+ years of experience in financial writing, analysis and product ownership. He has a bachelor's degree with a specialty in finance and lives in Canada. Kiril’s current focus is on finance and cryptocurrencies. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. He owns Bitcoin, Ethereum, and other cryptocurrencies. He holds investment positions in the coins but does not engage in short-term or day-trading. kirilnikk123@gmail.com

Show comments