Here, I’m going to review the Q1 earnings. I’ll also explain whether I’d buy Amazon stock right now.
Amazon: Q1 earnings
Amazon’s Q1 results smashed Wall Street’s expectations. For the quarter, revenue was up 44% to $108.5bn versus the $104.5bn expected. Meanwhile, earnings per share came in at $15.79 versus $9.54 expected and $5.01 in Q1 2020.
Growth in the e-commerce division was particularly impressive during Q1. Here, online store sales were up 44% to $52.9bn while third-party seller services were up 64% to $23.7bn. However, the cloud division (Amazon Web Services) also saw strong growth, with sales up 32% year-on-year to $13.5bn. Meanwhile, sales in the company’s subscription services and ‘other’ (this includes advertising) segments were up 36% and 77% respectively. The only segment that was disappointing was Physical stores, where sales were down 16%. This is not particularly surprising, however, given that many countries were on lockdown during the quarter.
It’s worth noting that during the quarter, Amazon’s sales grew faster internationally than they did in the US. International revenue surged 60% year-on-year, while North America revenue climbed 40%.
Looking ahead, Amazon said that it expects to generate revenue between $110bn and $116bn for Q2 (Wall Street was expecting $108.6bn). This suggests that the company expects the growth momentum to continue.
Should I buy Amazon stock now?
I already own some Amazon stock. Currently, AMZN is the sixth-largest holding in my stocks portfolio. Would I buy more today at the current share price? Yes, I would.
The reason I’d buy AMZN stock today is that I believe the company is only going to get bigger in the years ahead. In many countries, the group is just getting started. Here in the UK, its market share in online shopping is still under 10%. By contrast, in the US, it’s around 40%. This leads me to believe there’s substantial growth potential.
It’s not just about online shopping though. What I’m really excited about is the growth potential in cloud computing. The cloud computing industry is set to grow at around 18% per year between now and 2025. Given that Amazon is the number one player in this space with its AWS offering, I think the company can generate huge growth here.
If Amazon can keep delivering strong growth in both e-commerce and cloud, I think its share price could be significantly higher in a few years’ time.
Amazon stock price forecasts
It’s worth pointing out that since the Q1 results, over 20 analysts have lifted their price targets for Amazon stock. Many brokers, including JP Morgan, Deutsche Bank, and Mizuho, have increased their price targets to $4,400 or higher. One broker, Susquehanna, even lifted its price target to $5,500. That’s about 65% above the current share price. So, I’m certainly not the only one who thinks Amazon’s share price can go higher.
Of course, there are risks to the investment case here. Amazon is an expensive stock (forward-looking P/E ratio of about 60) prone to sharp pullbacks. It regularly experiences pullbacks of 20%-30%. If growth is disappointing in the future, or there is an unexpected setback (such as regulatory action), the stock could experience another pullback. This means it’s not likely to be suitable for risk-averse investors.
I’m comfortable with the risks, however. In my view, the long-term risk/reward proposition here is attractive.
Edward Sheldon owns shares in Amazon. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.