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Should You Buy Amazon Stock Before Prime Day?

By Adria Cimino – Oct 9, 2020 at 10:47AM

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Amazon has managed huge demand this year. Now, Prime Day will put it to a new test.

The sale of all sales is right around the corner: Amazon's (AMZN -1.63%) Prime Day will take place on Oct. 13-14. Past events have taken place in July, but this year the online retailing giant delayed the sale as it dealt with overwhelming demand brought on by the coronavirus pandemic.

Last year, Prime Day sales exceeded Amazon's Black Friday and Cyber Monday sales combined as members purchased more than 175 million items globally. Amazon doesn't release sales figures, but according to Statista, Prime Day revenue totaled $7.16 billion in 2019.

If this year's event is as successful, will Amazon shares return to all-time-high levels reached in August? And if so, should you beat the rush and buy Amazon stock right now? Let's take a closer look and see if there's a good answer.

A smiling couple leans over a computer with a credit card while shopping online.

Image source: Getty Images.

Net income doubles

While retailers that rely on in-store shopping have suffered in 2020, Amazon's sales have soared. Consumers, following stay-at-home orders, have turned to e-commerce to meet their shopping needs and, in some cases, stockpile essentials. In the first quarter, Amazon's sales climbed 26% year over year to $75.5 billion. In the second quarter, sales jumped 40% to $88.9 billion and net income doubled to $5.2 billion compared to the year-earlier period.

The Selligent Global Connected Consumer Index report shows that 36% of consumers these days are shopping online weekly compared with 28% prior to the coronavirus outbreak.

And e-commerce gains aren't likely to stop any time soon. The health crisis continues and many consumers are still trying to avoid crowds. With the holiday season approaching, shopping for gifts will be on the minds of many as well. These factors suggest Amazon is heading into Prime Day in a position of strength.

The challenge Amazon faces is whether its logistics team will be able to handle the order volume and fullfill its two-day delivery promises to Prime users? During the coronavirus outbreak, the company has struggled with delivery demands. In March and April, Amazon hired 175,000 people in fulfillment and delivery to address the issue. Last month, the retailer said it plans to hire 100,000 additional people for operations network roles in the U.S. and Canada. Amazon has also opened more than 75 new fulfillment and other related centers in the two countries this year and just last month opened 100 buildings across its sites.

A big victory is at stake

Amazon is hoping its recent hiring and logistics ramp-up will help it successfully manage Prime Day demand. Doing so also means likely new Prime members, who signed up to benefit from the sale, will stick around after their trial membership ends. But troubles and issues could result in just the opposite. Still, I think Amazon learned from its early coronavirus experience and has developed an appropriate logistics scale-up. That belief has me optimistic about Amazon's Prime Day prospects.

How big could Prime Day be for Amazon? The event is projected to generate $9.91 billion globally, up 43% from last year, according to a forecast from eMarketer. That's nearly 9% of the company's total second-quarter sales figure, projected to come from sales made in only two days. Last year, Amazon devices such as the Echo Dot and Fire TV Stick were top-selling items. This year, Amazon promises up to $80 off on some of its devices, 30% to 50% off on household items, up to 40% off many toys, and other deals across product categories. Even the grocery segment will offer savings, with 30% off Hershey's Halloween candy, for example.

But should you buy Amazon stock?

So, does this mean your first Prime Day purchase should be Amazon shares? Yes and no. Solid Prime Day performance will likely boost Amazon shares. So, in the short term, investors will benefit. But if you buy Amazon shares in a few weeks or months instead of now, you won't have lost out. Investors will benefit even more from Amazon over the long term. Annual earnings and revenue have been rising over the past several years and have really taken off as of 2018.

AMZN Net Income (Annual) Chart

AMZN Net Income (Annual) data by YCharts

Online shopping was gaining ground before the coronavirus outbreak. Last year, global online sales rose 19% to $3.53 trillion from the previous year, a Statista report shows. Now, with the consumer's new online shopping routine and new perspective on in-store visits, I expect e-commerce to remain popular even post-coronavirus.

All of this means Amazon stock makes a great pre-Prime Day deal and a solid long-term stock to buy down the road -- even at a higher price.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adria Cimino owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool has a disclosure policy.

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