An Amazon driver loads packages into a delivery truck at an Amazon delivery station on November 28, 2022 in Alpharetta, Georgia.
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It’s been a brutal year for mega-cap tech stocks across the board. But 2022 was particularly tough for us Amazon.
The e-retailer’s stock wraps up its worst year since the dot-com crash. The stock is down 51% in 2022, its biggest drop since 2000, when it plummeted 80%. Only Teslaby 68% and Metaless than 66% had a worse year among the most valuable technology companies.
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Amazon’s market cap has shrunk to about $834 billion from $1.7 trillion at the start of the year. The company fell out of the trillion-dollar club last month.
Much of Amazon’s misfortune is tied to the economy and macroeconomic environment. Rising inflation and rising interest rates have pushed investors away from growth and towards companies with high profit margins, consistent cash flows and high dividend yields.
But Amazon investors had other reasons for exiting the stock. The company is struggling with declining sales as predictions of an ongoing post-Covid e-commerce boom failed to materialize. At the height of the pandemic, consumers relied on online retailers like Amazon for goods ranging from toilet paper to face masks to patio furniture. That pushed Amazon stock to record highs as sales soared.
As the economy reopened, consumers gradually returned to shopping in stores and spending on things like travel and restaurants, causing Amazon’s impressive sales growth to falter. The situation only worsened earlier this year when the company faced higher costs related to inflation, the war in Ukraine and supply chain restrictions.
Amazon CEO Andy Jassy, who succeeded founder Jeff Bezos at the helm in July 2021, admitted the company had hired too many employees and overbuilt its warehouse network as it struggled to keep up with demand from the to keep pace with the pandemic. It has since paused or abandoned plans to open some new facilities, and headcount shrank in the second quarter.
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Amazon’s Drop 2022 vs. Tesla and Meta
Jassy has also embarked on a wide-ranging review of the company’s spending, which has resulted in some programs being shut down and a hiring freeze imposed on the company’s entire workforce. Last month, Amazon began what is expected to be the largest job cut in its history, with a goal of laying off up to 10,000 employees.
Even Amazon’s cloud computing segment, which is usually a haven for investors, posted its weakest revenue growth yet in the third quarter.
Looking ahead to 2023, several analysts have trimmed their estimates, citing ongoing macro headwinds and continued weaknesses in online retail and cloud computing.
Evercore ISI analyst Mark Mahaney lowered his 2023 estimates for Amazon in a Dec. 18 note, forecasting overall retail sales growth for the year of 6% versus 10%. He lowered his forecast for Amazon Web Services’ annual 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 choice of companies. He cited Amazon’s growing share of retail, cloud, and advertising, its apparent isolation from risks like changes in advertising privacy, and its continued investments in areas like groceries, healthcare, and logistics.
“For those investors with a 2-3 year time horizon and looking to benefit from the recent dislocation in high-quality net stocks, we highly recommend AMZN,” wrote Mahaney, who has an outperformance rating on the stock. While recession concerns are real and earnings estimates need to be lowered, “AMZN remains arguably the highest quality asset we cover in terms of revenue and earnings prospects,” Mahaney wrote.
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