All in all, it was a terrible year for mega-cap tech stocks. But Amazon had a particularly difficult 2022.
The e-stock retailer’s is ending the worst year for its shares since the dot-com disaster. The stock has fallen 51% in 2022, which is the worst decrease since it fell 80% in 2000. Only two of the most valued tech businesses, Tesla, which is down 68%, and Meta, which is down 66%, have had a worse year.
Amazon’s market capitalization has decreased from $1.7 trillion at the beginning of the year to roughly $834 billion now. Last month, the business was kicked out of the trillion-dollar club.
The macroeconomic environment and economy have a significant impact on Amazon’s misfortunes. Investors are shifting away from growth and toward businesses with high profit margins, reliable cash flow, and high dividend yields as a result of skyrocketing inflation and rising interest rates.
Investors in Amazon, though, have additional motives for selling the stock. Sales are slowing down for the company as expected post-Covid e-commerce boom expectations didn’t materialize.
At the height of the pandemic, customers started to rely on internet merchants like Amazon for products including patio furniture, face masks, and toilet paper. Sales rose as a result, driving Amazon’s stock to historic highs.
Consumer spending on things like travel and restaurants increased as the economy gradually recovered, which slowed Amazon’s strong revenue growth. As the company dealt with rising costs brought on by inflation, the crisis in Ukraine, and supply chain restrictions at the beginning of this year, the situation only became worse.
In order to keep up with demand during the pandemic, Amazon CEO Andy Jassy, who took over from founder Jeff Bezos in July 2021, stated that the business employed too many employees and overbuilt its warehouse network. Its head count decreased in the second quarter, and it has since postponed or abandoned plans to open a few new sites.
Jassy has also started a thorough investigation of the costs of the business, leading to the termination of various programs and a hiring freeze for the entire corporate staff. Aiming to fire up to 10,000 workers, Amazon started making what are anticipated to be the largest corporate employment cutbacks in its history last month.
Even Amazon’s traditionally safe haven for investors, its cloud computing division, posted its worst revenue growth to date in the third quarter.
Looking to 2023, several analysts have reduced their estimates, citing persistent macro headwinds and continued softness in online retail and cloud computing.
Evercore ISI analyst Mark Mahaney, in a Dec. 18 note, lowered his 2023 estimates for Amazon, predicting total retail sales growth for the year of 6%, down from 10%. He cut his forecast for annual Amazon Web Services revenue growth to 20% from 26%.
Still, Mahaney said he remains bullish on Amazon’s long-term prospects, calling it a “buffet buy” because of its assortment of businesses. He pointed to Amazon’s growing share in retail, cloud and advertising, its apparent insulation from risks such as ad privacy changes, and its continued investment in areas like groceries, health care and logistics.
“For those investors who utilize 2-3 year time horizons and are looking to take advantage of the recent dislocation in high quality ’Net stocks, we highly recommend AMZN,” wrote Mahaney, who has an outperform rating on the stock.
While recessionary concerns are real and earnings estimate will have to come down, “AMZN remains arguably the highest quality asset we cover in terms of Revenue and Profit outlooks,” Mahaney wrote.