Shares of Amazon (AMZN) have been very volatile this past week, thanks in part to a brutal quarterly earnings report. Undoubtedly, ever since founder Jeff Bezos handed over the reins to CEO Andy Jassy, it’s been nothing but negative for the stock.
Indeed, Jassy has a lot to prove, and while his tenure has been short, he needs to find ways to get the stock moving higher again, even as macro headwinds begin to mount.
With AMZN stock down around 33% from its all-time high, investors seem split on the e-commerce behemoth. Though still a disruptor at heart, the company seems to have over-invested in key areas, leading to a horrendous first-quarter loss.
Undoubtedly, Amazon is investing for the future and is more than willing to take a near-term hit for a shot at long-term dominance. Still, with a recession on the horizon and rates poised to keep on rising, such efforts have been met with punishment.
Amazon Stock Joins the Basket of FAANG Losers
Though the broader e-commerce space has been deflated in recent quarters, I still view Amazon not only as the best e-commerce play but as one of the best bargains of FAANG.
This year has seen the FAANG basket be shattered, with huge misses and steep declines that are un-FAANG-like. FAANG stocks are supposed to be pillars of stability in the tech sector. About half of them have crumbled, with the other half treading water.
With Amazon on the descent, I do think the market has overly punished the name. The company is still on the right track, with incredible initiatives such as the “Buy with Prime” button, which could represent the company’s next significant growth segment.
Though “Buy with Prime” won’t move the needle overnight, I do think it challenges logistics firms and ease-of-use payment providers like PayPal.
Amazon is no stranger to disruption. Though the Jassy era has been underwhelming to investors thus far, I’m giving him the benefit of the doubt.
Amazon Stock’s Brutal Quarter Wasn’t That Ugly
Amazon missed the mark for its first quarter, with indications that more weakness could be in the cards for the second quarter. Undoubtedly, the “beat and raise” has been met with a muted reaction for firms this quarter.
Even earnings beats with conservative guidance have been met with fury. So, it should come as no surprise to see Amazon stock implode following its “miss and downgrade.”
It’s very un-FAANG-like, indeed. However, there are reasons to forgive the quarter. The cloud continues to be a strong point for Amazon. Enterprise is continuing to power AWS growth. On the margin front, inflation and over-investment in capacity and labor have hurt the firm.
Still, inflation is a temporary sore spot that will ease with time. Further, what seems like over-investment today may not seem like such 18 months from now.
Amazon is Still in Its Prime
With an ambitious plan to open up its logistical capabilities to the masses with “Buy with Prime,” heavy investment in capacity is needed. Further, Amazon may need to continue funneling major sums across various localities if its new service is a smash hit with retailers and consumers.
Undoubtedly, such a service could provide ample value for merchants and customers alike, and it could prove hard to match.
Though there was ugliness in Amazon’s quarter, I don’t think you can fault Jassy and his team just yet. If anything, recent weakness seems more about the bleak near- to medium-term future. Indeed, “Buy with Prime” will not pay off overnight, but if Jassy pulls it off, it could power Amazon’s next leg of growth. For such a large company, Amazon is still the disruptor for firms to keep tabs on.
In that regard, I view Amazon as a magnificent company that’s still in its prime (forgive the pun). In any case, Amazon’s “over-investment” may only apply to the near-to-medium term.
Wall Street’s Take
Turning to Wall Street, AMZN stock comes in as a Strong Buy. Out of 38 analyst ratings, there are 36 Buys, one Hold, and one Sell rating assigned in the past three months. The average Amazon price target is $3,695 and change, implying upside potential of ~56%. (See AMZN stock forecast on TipRanks)
The Bottom Line on Amazon Stock
Amazon stock is stuck in a rare rut. It’s right back to multi-year lows of ~$2,500 per share. The company got off to a rocky start to the year, but as inflation woes ease (and they should with time) and the “Buy with Prime” effort starts to yield fruit, don’t expect AMZN stock to remain depressed forever.
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