Amazon share price forecast: in Prime position?

The latest Amazon share price forecast is upbeat after the company radically surpassed expectations in Q2, but there are worries that the uptick in sales won’t last

It’s sad but it’s true: a disastrous time for the retail sector is dynamite for the Amazon share price forecast. As shopping centre owners go into administration and job losses rise at some of the world’s best-known brands, it seems nothing can stop the e-commerce behemoth.

Amazon’s stock market performance has been jaw-dropping to watch. The share price has practically doubled since plumbing depths of about $1,625 (£1,230, €1,374) in March. You could argue that this decline was something of a massive overreaction by spooked investors on Wall Street. Unable to pop into bricks-and-mortar stores because of the lockdown, it seemed inevitable that consumers would flock to online shopping instead – and that Amazon was well primed (pardon the pun) to cater to their every need .  

The Amazon stock forecast was buoyed when the company, boasting a market cap of $1.64tr, released its second-quarter results at the end of July. As you’d expect, it walked all over analyst expectations by announcing sales of $89bn – close to 10 per cent higher than what had been predicted. To add some much-needed context, that’s a 40 per cent rise on the same period in 2019.

Another promising piece of Amazon stock news could be found in the profit margins. Even though the eCommerce giant had warned that it could swing to a loss of $1.5bn in Q2 as it stepped up COVID-19 precautions, the company actually ended up making $5.2bn. Again, this is a dramatic leap – double what was seen in the second quarter of last year. It seems the enhanced safety protocols and substantive investment in personal protective equipment paled in comparison to the uptick in demand.

Amazon.com Inc
Daily change
3514.18
Low: 3495.97
High: 3532.26

Amazon stock price forecast: changing habits

During an earnings call after the results were released, chief financial officer Brian Olsavsky revealed something that would be news to any analyst’s ears: customers with a Prime subscription, where deliveries are made the next day, are shopping far more frequently than they were in the past. Better still, the total value of their orders at checkout is higher, too.

Overall, the figures show that the real strength in Amazon’s business right now is to be found in the area that it’s best known for: online shopping. However, the Amazon share forecast needs to take into account that the company hasn’t been left unscathed by the coronavirus pandemic, and there are some areas that are a cause for concern.

The Q2 report shows that sales at Amazon Web Services didn’t perform as strongly as expected. Then again, growth of 28.9 per cent still shouldn’t be scoffed at. Another cloud on the horizon is the disruption that Covid-19 has wrought on Amazon Studios, the division delivering original TV shows and movies to Prime Video customers. With many productions still suspended, we’re probably going to see a massive lull in new releases a few months down the line. Although other streaming services like Netflix are in a similar boat, this is still an inconvenience given how Amazon is battling to retain dominance in a crowded market.

Amazon stock news

Of course, the rosy Amazon stock forecast during a recession where there have been millions of job losses is resulting in some uncomfortable column inches for Jeff Bezos, even more so than usual. In the middle of August, Forbes declared that his net worth had surged to a record level of $197.8bn. To put that into context, the magazine said this was “the highest fortune Forbes has recorded in nearly four decades of tracking billionaires”.

Bezos owns an 11.1 per cent stake in the company and during one particularly productive trading session for Amazon stock, his personal fortune jumped by £10bn. Yes, that’s right, £10bn in a single day. All of this has created a rather nasty juxtaposition, given the ongoing concerns about the treatment of Amazon workers in the company’s cavernous warehouses.

But there are some analysts who are starting to get very nervous when they’re preparing their Amazon share price forecasts. The question they’re asking is whether this remarkable growth is sustainable, or whether it’ll fade quickly once people start to return to work, and as shops get back to normal once mask wearing and social-distancing measures are dropped.

As far as Goldman Sachs’ Amazon stock forecast is concerned, it doesn’t believe that’s a danger in the near term. It actually has a price target of $4,200 for AMZN, and recently said:

‘We believe that the long term steepening of Amazon's growth curve ... [is] likely to drive share price outperformance well beyond the current crisis.’

But Michael Kramer, the founder of Mott Capital Management, doesn’t see things the same way. Recently writing in Forbes, he shared technical analysis that suggests a pullback from current levels could be on the horizon, and this could result in the stock falling 15 per cent 

How high will Amazon stock go?

So, is Amazon stock a good buy? Well, the company is continuing to aggressively invest in new areas. Indeed, there was recently a significant development in the UK market, with the supermarket Morrisons announcing that its customers can now do their full shop on Amazon UK. Prime members will even be able to get same-day delivery if they spend more than £40.

However, there are some reports that suggest that the company doesn’t play nice. According to The Wall Street Journal, Amazon is being accused of meeting with start-ups with a view to making an investment, only to launch its own products that served as direct competition. Some of the entrepreneurs that the WSJ spoke to said it crushed their ventures.

Amazon stock: buy or sell?

Given that Amazon’s share price stands at $3,288 at the time of writing, the company is facing growing pressure to follow the lead of Apple and Tesla by announcing a stock split. However, it doesn’t seem like this is something that the e-commerce giant is planning to pursue with much urgency.

According to the latest Amazon stock price forecast from CNN Business, the high-end prediction for the company’s stock stands at $4,200, an upside of 27.7 per cent from current levels. The median estimate forecasts a 12.5 per cent rise to $4,700, while the low-end prediction is a 19.6 per cent fall to $2,646. Nonetheless, out of 47 analysts, an overwhelming 40 analysts have a buy rating, with two expecting it to outperform. Four recommend holding the stock, and just one attaches a sell rating.

 

FURTHER READING: Blue-chip stocks: are they the best bet?

FURTHER READING: Stock market forecast for the next five years

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