By
Bhushan Akolkar
April 25th, 2024
Going into 2023 analysts are expecting a further slowdown in Amazon’s retail sales growth and cloud computing business growth.
Shares of e-commerce retail giant Amazon (NASDAQ: AMZN) have been crushed pretty hard this year in 2022. Amazon has lost over 50% of its value while becoming the first company to lose $1 trillion in market value.
Value of Amazon and Its Stock
The AMZN stock is also facing its worst year since the Dot-Com crash. Back in 2022, the AMZN stock had crashed more than 80%. This year’s 50% price crash is the second-biggest decline in the history of markets. As of Thursday’s closing, the AMZN stock is trading at $84.18 with a market cap of $858 billion. Just to give a perspective, Amazon’s market cap was $1.7 trillion at the start of the year. The company dropped out of the trillion-dollar club just last month.
Apart from just Amazon, this year of 2022 has been pretty unsparing for all the big-tech companies. Tesla (NASDAQ: TSLA) and Meta (NASDAQ: FB) saw their stock prices dropping nearly 70% making 2022, the worst year for them.
Apart from the slowing business operations, much of Amazon’s misfortune is tied to the current macro environment. Soaring inflation and rising interest rates are some of the key reasons driving investors away from growth stocks.
Of course, another reason for Amazon investors to opt-out is the company’s slowing sales as the post-Covid e-commerce boom failed to sustain as predicted. During the pandemic period, online retailers like Amazon had a gala time with consumers depending on them for every category of goods. As sales soared in 2021, the AMZN stock also touched record highs last year. Also, the massive flush of money by the Fed led to greater purchasing power for the average consumer.
As the economy reopened, inflation was already skyrocketing. This has eaten up profit margins for Amazon.
The Road Ahead for Amazon in 2023
Amazon CEO Andy Jassy, who took the helm last year in July 2021, is now in damage control mode. He has been thoroughly conducting a wide-ranging review of the company’s expenses. This has resulted in the shuttering of programs and a hiring freeze across its corporate workforce.
The Amazon CEO has warned that the layoffs might continue going into the next year. The e-commerce giant is planning to lay off an additional 10,000 employees. “I’ve been in this role now for about a year and a half, and without a doubt, this is the most difficult decision we’ve made during that time (and, we’ve had to make some very tough calls over the past couple of years, particularly during the heart of the pandemic),” Jassy wrote.
Apart from the e-commerce business, the company’s cloud computing business is also slowing down. This unit recorded the slowest growth during the third quarter.
Going ahead into 2023, several macro analysts have reduced their estimates citing persistent headwinds. Evercore ISI analyst Mark Mahaney cut down his 2023 estimates for amazon. He predicts a lower retail sales growth at 6% instead of 10%. Besides, he also cut his forecast for AWS revenue growth to 20% instead of 26%.
But Mahaney still has an outperform rating on the AMZN stock. He wrote:
“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. AMZN remains arguably the highest quality asset we cover in terms of Revenue and Profit outlooks.”
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