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Insider Selling of Amazon Spikes in Q1, but it's Not Time to Sell

PARIS, FRANCE - JAN 28, 2016: Amazon logotype printed on cardboard box side seen from above on a wooden parwuet floor. Amazon is an American electronic e-commerce company distribution worlwide e-commerce goods

It’s not unusual for insiders to sell (NASDAQ: AMZN) stock. Insiders own a large 12% of the company, and share-based compensation is a factor, but there has been unusual activity this quarter. Insider selling spiked to a multi-year high as eight insiders leaned into sales. 

The sales are likely meaningless in the grand scheme, opportunistic profit-taking with shares near record levels, but the spike is notable for the volume of scope of activity. Insiders, including Amazon founder Jeff Bezos, CEO Andrew Jassy, CEO of Worldwide Amazon Stores Douglass Herrington, CEO of AWS Adam Selipsky, and several directors, made sales. Together, there’ve been 20 sales in the last 90 days, and Mr. Bezos, at least, is expected to continue selling. A recent filing was revealed, allowing him to sell more than 5% of his holdings before next year. 

Institutions and Analysts are Buying Amazon Stock

The sell-side activity in Amazon is favorable to higher share prices. Institutions own 57% of the company and have bought on balance for three consecutive quarters. Their activity is led by fund giants Vanguard and BlackRock and ramping to a multi-year high in Q1 2024. Mr. Bezos remains the largest shareholder with nearly 10% of the stock, followed by Vanguard’s 7.4% and BlackRock’s 4.6%. The ramp-up of institutional activity coincides with a rally in share prices and supports the market. 

Analysts’ activity also supports Amazon's market. Analysts' revisions over the past four quarters have lifted the consensus rating to Buy from Moderate Buy and the price target by 36% compared to last year. The consensus of $197 leads the market by 13% and is being led higher by the revisions. The freshest targets have the stock trading with a floor near the current consensus and a 30% upside at the range high end. 

Wells Fargo, which has an Overweight rating and a $211 price target, is looking to new fees to drive growth and margin. The adjustments to the FBA or fulfilled by Amazon fees are thought to add $5.2 in annualized income, about 80 basis points of growth in the first year, and widen the margin by 100 basis points. The government is looking into the new fee structure but is not expected to block the move. 

Amazon Will Report Q1 Earnings On April 26th

Amazon is expected to report earnings on April 26th. There is a risk that analysts have set the bar high because forty-four of the forty-five revisions in the last ninety days are upward, but the analysts may still underestimate the business. Consensus expects revenue growth to slow to 12% from 14% last quarter, the first sequential slowdown in over a year. Because growth is sustained by resilient consumer demand and burgeoning demand for AI at AWS, the company will likely outperform estimates. Amazon beat estimates 100% of the time in F2023.

The price action on Amazon is favorable. The stock corrected in 2022 and 2023, hit a bottom and reversed with a Head & Shoulders that has the market near record highs now. The latest action is a consolidation within the rally that suggests a move to new highs is possible. 

A move to the analysts' consensus of $197 would set a new high and open the door to a sustained rally in the back half of 2024. In that scenario, this market could advance from the $180 level by an amount equal to the magnitude of the preceding price range. That range is worth more than $100 or about 125%, putting Amazon's target range at $280 to $405. 

The risk is that no new highs will be reached. In this scenario, resistance at the all-time high will cap gains and return the market to more reasonable levels. Amazon is performing well, but 42X earnings are high for any blue-chip tech

Amazon stock chart

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