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3 Things I’ll Be Looking for in Amazon’s Earnings Report

By Adria Cimino – Apr 27, 2020 at 5:59PM

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Here are three key elements that, if positive, may drive Amazon share gains well into the future.

Most retailers have struggled through the past few months as the coronavirus pandemic led to store shutdowns and lower demand for many products. The story was different at e-commerce giant (AMZN -4.77%), which had to hire thousands of new employees to keep up with orders to its website.

When Amazon reports fiscal 2020 first-quarter earnings on Thursday, April 30, here are three metrics I'll be looking for details on:

A woman looks through a box of groceries.

Image source: Getty Images.

1. How did grocery sales go?

Amazon recently created more than 175,000 jobs to address the surge in online orders since the start of the COVID-19 health crisis. The company hasn't said whether the demand has been primarily in its grocery segment, but it would be logical to expect strength in that area for a few reasons. We know consumers have been stocking their pantries and favoring online shopping to avoid leaving their homes and helping stop the spread of the coronavirus. Digital Commerce 360, citing Rakuten Intelligence, reported the dollar value of online grocery orders from March 12 through March 15 surged 210% and the number of orders climbed 151% year over year. Also, early in the crisis, there is plenty of anecdotal evidence that as many tried to order pantry items on Amazon, some were unavailable. Many shoppers received messages that indicated a short supply and longer delivery times, and Amazon converted some of its Whole Foods grocery stores to online fulfillment centers to meet this surge in demand. 

Online grocery has been a growing area not only for Amazon but for other companies as well. U.S. grocery is the fastest-growing e-commerce product category and will reach $38 billion by 2023 from almost $20 billion last year, according to eMarketer. As for Amazon, delivery orders from Amazon Fresh and Whole Foods more than doubled year over year in the fourth quarter.

Amazon doesn't offer a specific breakdown for groceries versus other items in its earnings report, but I would like to see a comment on the performance of Amazon Fresh and Whole Foods orders during the first quarter. I'm hoping gains may be stronger than what was reported in the fourth quarter. The retailer has been competing with Walmart in this area, so it will be interesting to see how each fared during this time when many shoppers turned online for their food and essentials purchases. Though this period may be a bit of an exception, it still offers some indication of how Amazon is doing versus its rival (once Walmart reports its quarterly figures).

2. Any update on Prime membership?

In the fourth quarter, Amazon said it had more than 150 million paid Prime members globally. Amazon's Prime membership offers the delivery of grocery and other items as well as access to movies, music, and books right at home. That sounds particularly good at a time when people are ordered to stay home. These unofficial lockdowns throughout the U.S. may have helped Prime in two ways. Those who are already members may have placed more orders, or more orders of more value, as they stockpiled necessities. And some may have taken advantage of add-ons like the Amazon Channels subscription or Amazon Music Unlimited for an additional charge.

And what about people who aren't Prime members? Well, some may have decided to give it a try. That's great, but one point that investors will want to monitor is this: Will these newcomers stay? Because you can cancel a membership at any time, it's possible some customers will sign up during this lockdown period, then cancel once things return to normal.

Amazon doesn't systematically report Prime membership totals each quarter, so if the company doesn't offer details, we shouldn't worry. But we should look out for any comments that may offer clues about subscription gains. As with grocery, I would expect growth in this area.

Will there be a post-lockdown outlook?

Amazon has faced some headwinds during the coronavirus outbreak. The company had to invest almost $700 million in pay to cover overtime and higher wages. Intensified cleaning of facilities is another cost. And in France, a court ordered Amazon to stop shipping nonessential items to consumers during the lockdown period or risk fines. Amazon followed up by announcing operations concerning these types of items would remain closed until May 5 as it evaluates how to proceed, considering the court's decision. Amazon still is permitted to sell and deliver products in other categories, including nutrition, food and beverage, and office supplies. Amazon doesn't break down sales country by country, but according to Statista, generated $3.4 billion in net sales in 2018. That's only 1.4% of Amazon's total annual sales, so I wouldn't expect a major impact on earnings from the current situation in France.    

I'm optimistic about Amazon's April 30 earnings report because of the company's strength prior to the coronavirus outbreak and the increase in demand over the past weeks. The coronavirus crisis isn't over, but little by little, brick-and-mortar businesses may begin to open in the coming weeks, and some Americans will return to work.

Many companies, with earnings shaken by the crisis, have withdrawn guidance or refused to provide an outlook. If Amazon reports strong earnings, I'm hoping the company might offer a glimpse of what we should expect for the next quarter. Any comments might be clues about how much of the recent demand was exceptional and how much may continue. We surely won't see an abrupt end to the coronavirus crisis, but the shopping patterns at the start of the lockdown probably won't last. We can't expect stockpile-style online shopping -- with customers loading up on large quantities of paper goods and cleaning products in just one online shopping trip -- steadily into the future. That said, consumers may not be ready to go back to physical stores any time soon, and that would be good news for Amazon. 

Amazon shares have climbed 30% this year, but if this earnings report is positive, we may expect further gains in this top stock in the near term (and beyond).

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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