What happened
For four long trading days in a row last week, shares of e-commerce giant Amazon.com (NASDAQ: AMZN) went nowhere but down. And Monday's news isn't looking likely to change that trend for the better.
U.S. stock indexes fell on Monday, led by shares of Tesla and other megapcap companies, as investors feared that the Federal Reserve's monetary policy tightening campaign could push the U.S. economy into a recession.
Amazon AMZN is likely to face challenges during the peak shopping hours of this holiday season in the form of a workers’ strike in Germany in the coming days.Reportedly, the German labor union Verdi has asked the workers at Amazon’s seven German distribution centers to jo
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German union Verdi on Sunday urged workers at Amazon warehouses across the country to support rolling strikes in coming days in a protest over pay, aimed at maximising disruption to the online retailer's pre-Christmas business.
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Amazon (
NASDAQ:AMZN
), like several other tech stocks, has been battered this year due to macro pressures and the growing fears of a global economic slowdown. The stock might remain volatile over the near term due to rising interest rates and weak consumer spending. Nonetheless, most Wall Street analysts are bullish about Amazon’s long-term growth due to its dominance in the e-commerce and cloud computing markets.
Amazon Well-Equipped to Face Near-Term Headwinds
High inflation and recessionary fears have severely hit Amazon’s e-commerce business following a stellar run earlier in the pandemic. In the third quarter, revenue from the company’s North America segment grew 20%, while the International retail segment’s revenue declined 5%. Both segments reported operating losses in the quarter due to higher expenses.
Nonetheless, Amazon returned to profitability in Q3 due to $5.4 billion of operating income from its Amazon Web Services (AWS) cloud computing segment. The AWS segment’s revenue increased 27.5%, marking the slowest growth since 2014 due to the impact of economic pressures on the IT budgets of enterprises. Overall, AWS is showing resilience amid tough conditions and seems poised to deliver robust growth once the macro challenges ease.
Also, one needs to pay attention to the company’s rapidly growing advertising business. The company’s advertising services revenue grew 25% to $9.5 billion, while several other ad-dependent companies struggled during the quarter.
Amazon’s Q4 revenue growth guidance of 2% to 8% suggests continued pressures in the holiday season. Nevertheless, the company is trying to improve its profitability by reducing costs through productivity measures,
headcount reduction, and closure of unprofitable businesses.
Is Amazon Stock a Buy?
This week, JP Morgan analyst
Doug Anmuth lowered his price target for Amazon stock to $130 from $145 to reflect macroeconomic pressures and the softness in the cloud business. Nonetheless, Anmuth reiterated a Buy rating as secular tailwinds for the business remain attractive. Also, he believes that the significant pullback in the stock “creates a compelling opportunity” for investors.
Anmuth added, “We believe Amazon's flexibility in pushing first-party vs. third-party inventory and its Prime offering both serve as major advantages in its retail business, and its multi-year head start in the cloud has led to a 40%+ AWS global market share.”
Overall, Amazon scores a Strong Buy consensus rating based on 33 buys and three Holds. The average Amazon stock price target of $140.03 implies 59.4% upside potential.
AMZN stock has plunged over 47% year-to-date.
Conclusion
Macro challenges might continue to weigh on Amazon stock over the near term. However, analysts are optimistic about the tech giant’s ability to navigate these pressures and emerge stronger, backed by the long-term prospects for AWS and other high-growth areas.
As per TipRanks’ Smart Score System, Amazon scores a “Perfect 10”, indicating that the stock could outperform the broader market over the long term.
Disclosure
In today's video, Jose Najarro and Nick Rossolillo discuss Amazon (NASDAQ: AMZN), Advanced Micro Devices (NASDAQ: AMD), Intel (NASDAQ: INTC), Apple (NASDAQ: AAPL), Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), and why big tech investing in chip design might not be the worst thing. The