Amazon bucked one of the worst quarters in market history and posted a gain amid the COVID crisis - Here's why Wall Street loves the stock

• Amazon shares gained 5.5% in the first quarter, while other tech giants and the broader market tanked amid the coronavirus outbreak.
• Analysts told Business Insider that Amazon is well-positioned to hold up against the recession because of the surge in online shopping and its cloud service usage, among others.
• 46 of the 48 analysts that track Amazon's stock recommending buying it, the most number of "buy" ratings among all S&P 500 companies, according to FactSet.
• The employee revolt against Amazon's working conditions is not expected to have a major impact on consumer behavior, analysts say.
• Visit Business Insider's homepage for more stories.

Few companies stand to gain as much as Amazon during the coronavirus outbreak as more people shop and work online following "stay-at-home" mandates issued across the country.

And Wall Street is rewarding Amazon for that.

Amazon's stock finished the first quarter with a positive gain while other tech giants and the broader market suffered steep losses across the board.

In the first three months of 2020, shares of Amazon were up 5.5%, far-outperforming the S&P 500's 20% drop, according to S&P Global Market Intelligence. Apple and Alphabet both saw their stock lose over 13% in value, and Facebook was down over 18% during the period. Microsoft shares, however, finished the quarter largely flat. Meanwhile, the Dow Jones industrial average completed its worst first quarter in history, tumbling 23%.

The results show how Amazon's stock is proving to be more resilient than others in a period of historic market volatility amid continued coronavirus fears.

Despite the supply chain lockdowns and worker safety issues facing Amazon, investors remain more bullish than ever on its stock. Of the 48 analysts that follow Amazon's stock, 46 have a "buy" rating, the most number of buy recommendations among all S&P 500 companies, according to FactSet (the other 2 analysts have "hold" ratings, and zero recommend selling the stock).

"Amazon is turning out to be a potential beneficiary from this COVID-19 crisis," RBC Capital's Mark Mahaney told Business Insider.

We asked Wall Street analysts what's driving Amazon's outperformance. Here's what they think is making the company largely recession-proof:

Mahaney said online shopping is seeing a surge in demand as more people work from home and look to avoid going to stores out of fear of contracting the disease. Amazon could be the biggest beneficiary of this change as it accounts for almost 40% of the US e-commerce market.

And as more people realize the convenience of online shopping, they could increase their Amazon usage permanently.

"The recent upsurge in online shopping may cause a somewhat permanent increase in Amazon usage by a large number of consumers," Mahaney said.

Andrew Murphy, an analyst at Loup Ventures, said Amazon is struggling to keep up with demand, which is a good problem to have. He said 72% of US consumers are now buying more online, and expects up to 32% of US retail sales to come from e-commerce in the second quarter, based on a recent survey run by Loup Ventures. That number will likely drop back to the normal 11% levels seen in previous quarters post-COVID-19, but it should help expand its future user base, he said.

One area that's particularly encouraging is Amazon's potential gain in grocery shopping, Murphy said. He said the share of people doing grocery shopping online jumped from 11% on March 1 to 41% on March 22, citing data from CivicScience.

As a result, more people could start using Amazon's grocery delivery service for the first time, which was made free to Prime members last year, he said.

Brent Thill from Jefferies said the shift to groceries is particularly interesting, given the segment represents less than 5% of Amazon's US retail sales. As more people try online grocery shopping, more people could get used to purchasing food and beverages on Amazon, driving increased sales for the company.

That could help Amazon gain shares against traditional retailers too, according to Baird analyst Colin Sebastian.

"Amazon will do better than other online and offline retailers, and will gain more share in grocery and consumables," he said.

Amazon Web Services is well-positioned to weather the storm as many companies, like Netflix and Zoom, which rely at least in part on AWS, are seeing a boost in usage, analysts say. AWS is a key part of Amazon because it generates more than half of its profits, allowing the company to invest in other parts of the business.

"No other retailer has a giant high margin software business that affords them to do lower margin things like last mile delivery," Thill said.

There's some concerns of startups cutting back on AWS usage, as they struggle with their own businesses in a recession, according to Baird's Sebastian. But that could be offset by other businesses moving to the cloud and increasing app usage post-COVID-19, he said.

"Amazon seems really well-positioned to emerge from the environment on stronger footing," Sebastian said.

Thill, the Jefferies analyst, said the surge in online shopping could also lead to more people signing up for Amazon's Prime membership program. That's important because Prime members tend to spend more and shop more frequently on Amazon.

"We would assume that this would yield a bigger uptick in Prime adoption," he said.

Murphy, at Loup Ventures, said that could help Amazon expand its Prime membership among the older and lower income user-base, where Amazon has struggled to gain share.

"New demographics have a new and valid reason to try online shopping," Murphy said.

Advertising, one of the fastest growing parts of Amazon, could see less impact from the economic downturn, even as companies reduce their ad spending.

BMO analyst Daniel Salmon wrote in a note this week that Amazon's ad business is likely going to hold up better than others, like Google, in the current environment because it's less exposed to industries that are hit hard by the recession. For example, the travel industry, which is significantly cutting back due to the coronavirus, spends very little on Amazon advertising.

"While its advertising business may experience a slight slowing in the near-term driven by the contraction of the overall advertising market, Amazon stands out as a relative outperformer and one of the best positioned when the advertising market recovers," Salmon wrote in the note.

Perhaps the biggest challenge currently facing Amazon is the labor issue. A growing number of warehouse and delivery workers are demanding better working conditions, claiming Amazon failed to provide adequate safety protections against the coronavirus.

Murphy at Loup Ventures said the narrative around Amazon's treatment of warehouse workers would become a bigger issue for investors only if consumers stop buying from Amazon. Given it's not the first time Amazon has faced these accusations, and it's had little impact on consumer behavior before, it's unlikely to hurt Amazon's business in any meaningful way this time either, he believes.

"Historically that narrative has not impacted consumers' usage of Amazon, and I don't expect it to this time," Murphy said.

Amazon's role in providing a means for effective social distancing, by delivering goods to the end consumer, could help reduce regulatory pressure, according to Jefferies's Thill. He thinks that could create a "regulatory halo" because Amazon is in effect helping the people in need.

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