Amazon's Focus on Black Friday Yields Positive Results, Says Gene Munster

Amazon.com Inc. (AMZN) has shifted its sales strategy for the second consecutive year, focusing more on Black Friday rather than Cyber Monday. This change has proven to be beneficial, according to Gene Munster from Deepwater Asset Management.

This strategic shift is consistent with Amazon’s established pattern of creating its own sales events, like Prime Day.

Recent Developments: Munster points out that potential alterations to tariffs, particularly rules concerning import duties for products valued over $800, may negatively affect Amazon's operations.

This year marks the second time Amazon has redirected its attention from Cyber Monday to Black Friday.

The company’s approach of creating its own promotional events, such as Prime Day in the summer of 2015, Prime Day in the fall of 2022, and the NFL Black Friday Game in 2023, is succeeding.

Munster has observed that, despite challenges, the retail market is gaining momentum, with sales growth increasing over the last eight quarters. Paid units sold have risen from 8% in December 2022 to 12% in September 2023.

Additionally, the profitability of retail has been on the rise. While Amazon does not disclose specific retail operating margins, Munster estimates a shift from a negative 3% two years ago to a positive 5% in the most recent quarter.

He speculates that further improvements to a 7% margin in 2025 could enhance earnings per share to $7.15, surpassing current predictions of $6.15.

Importance of the Shift: This change in focus comes amid a busy shopping season, with retailers across the U.S. and Europe offering discounts to attract customers.

Many stores opened as early as 5 a.m. on Black Friday, despite a shortened shopping season. Timing is crucial as more consumers are shopping earlier while discounts remain available.

Moreover, proposed tariffs by the incoming Trump administration could pose economic challenges. Analysts caution that these tariffs, intended to correct trade imbalances, might inadvertently strengthen the dollar, impacting both consumers and businesses.

Nevertheless, the sales period from Black Friday to Cyber Monday is projected to reach record levels, with U.S. retail sales estimated at $75 billion, indicating a 5% growth compared to the previous year. This underscores the significance of this shopping phase for retailers, as emphasized by Bain & Company.

Market Performance: On Friday, Amazon's stock closed at $207.89, marking a 1.05% increase. Year to date, shares of Amazon have surged nearly 39%.

Analysts maintain a consensus rating of "Buy" on Amazon stock, with the highest price target set at $285 and the lowest at $197. The average consensus price target is $238.16, suggesting a potential upside of 14.6%.

Amazon, BlackFriday, Profitability