Admittedly, value stocks aren't very entertaining. They're also not the sorts of investments you brag about owning at cocktail parties. In fact, it's not a stretch to describe them as being a bit boring.
After a disappointing third-quarter reporting period, analysts are projecting that fourth-quarter U.S. earnings will decline for the first time in two years as rising interest rates and slowing growth further dampen the outlook.
After a disappointing third-quarter reporting period, analysts are projecting that fourth-quarter U.S. earnings will decline for the first time in two years as rising interest rates and slowing growth further dampen the outlook.
NEW YORK (Reuters Breakingviews) - Layoffs at technology giants including Twitter, Amazon.com, and Meta Platforms mark the first large-scale job cuts since early 2020. After years of falling U.S. unemployment, it might seem like Silico
Long-term investing is critical for building wealth over time. Companies with long-term growth potential and strong track records are typically less volatile and offer better odds of steady growth over time. Amazon (
NASDAQ: AMZN
) is a perfect example of a company that has delivered exceptional returns to investors over a sustained period. Though it's a more mature business than in the past, it still has substantial upside potential from alternate growth drivers. Therefore, we remain bullish on AMZN stock.
Amazon was one of the biggest beneficiaries of the pandemic, as consumers flocked to online shopping amid lockdowns and other restrictions. However, now that the worst of the crisis is over, Amazon is facing several headwinds hurting its sales and margins. Comparisons to last year's record sales are becoming more difficult, with its e-commerce business under increasing pressure due to inflation and over-expansion.
During the third quarter, its North American e-commerce sales shot up 20% year-over-year to $78.8 billion, but operating income from the segment dropped from $880 million to negative $412 million. International e-commerce was perhaps even worse, with operating losses ballooning from $911 billion to $2.5 billion. Overall,
sales increased by 14.7% from the prior-year quarter, which was lower than analyst estimates.
Despite its challenges, the fundamental advantages of Amazon's e-commerce business remain firmly intact. Though inflation is likely to lead to margin pressure in the short term, this is not expected to be a long-term problem.
Furthermore, a quick look at
Amazon's website traffic indicates that the fourth quarter should be better than the third. This makes sense since it tends to be its best quarter. However, it's worth noting that unique visitors to the website are higher this year compared to the same time last year:
Additionally, the strengthening of the dollar has led to weakness in international eCommerce; the issue shouldn't last forever. As such, Amazon is still in a strong position for long-term success in eCommerce while its other businesses continue to fire for the company.
Amazon Web Services Remains Key
Amazon Web Services (AWS) currently commands a 33% market share and enjoys several advantages over its competitors, including scale, brand recognition, and high switching costs for clients. Amazon's decision to invest the money it saved from logistics into the cloud segment will help maintain its dominance in the sector. In addition, this move will also help Amazon to generate additional revenue from AWS, further solidifying its position as one of the most important technology companies in the world.
Amazon launched its second cloud data center region in the Middle East and announced a unique partnership with Harvard University to advance research and innovation in quantum networking.
Moreover, Amazon's massive cash balance is another key advantage in its expansion, as it allows the company to fund its growth without relying on outside capital. In addition to the Middle East expansion, Amazon has plans for Thailand as well.
However, the company did report a slowdown in growth for AWS during the third quarter of this year. AWS revenues improved 27% from the prior-year period to $20.5 billion but fell short of consensus estimates. AWS has contributed immensely to the firm's operating income over the past several quarters, while other segments reported losses.
The segment accounts for less than 20% of Amazon's total sales but is a major growth engine for the firm. Hence, a slowdown is a worrying sign for investors, although these concerns are short-term in nature.
Is Amazon Stock a Buy, Sell, or Hold?
Turning to Wall Street, AMZN stock maintains a Strong Buy consensus rating. Out of 35 total analyst ratings, 33 Buys, two Holds, and zero Sells were assigned over the past three months. The average AMZN price target is $140.06, implying 49.21% upside potential. Analyst price targets range from a low of $103 per share to a high of $192 per share.
Conclusion: Amazon Remains a Strong Business with Growth Potential
Amazon's stock price has been on a roller coaster ride recently, and it appears that the ride is not over yet. However, despite the volatility, Amazon remains a strong business with plenty of room for growth. Amazon has diversified into other rapidly growing verticals such as cloud services, advertising, streaming video, and others.
It faces plenty of short-term hurdles, which continue to mask its massive growth potential over the long term. Its stellar fundamentals and expanding market reach make it a compelling investment at current prices. Additionally, its
cost-cutting measures could significantly improve its bottom-line results down the road. With the stock trading at a substantial discount, it presents an excellent opportunity for growth investors.
Disclosure
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