Amazon’s 30% drop this year signals the e-commerce boom is over

  • Amazon’s first-quarter sales grew by just 7%, compared with a 44% expansion a year earlier.
  • Despite this setback on the earnings front, most Wall Street analysts remain optimistic about the company’s long-term prospects.
  • Bank of America (NYSE:) expects “significant” expansion in profit margins from 2023 to 2025.
  • For tools, data and content to help you make better investment decisions, try InvestingPro+.

E-commerce, which until now was one of the safest areas of the digital economy, is starting to show signs of weakness after two years of notable gains.

Revenue at the world’s largest online retailer, Amazon.com (NASDAQ:), grew by just 7% in the 2022 period, compared with a 44% expansion in the last year period. It was the slowest growth rate for the Seattle-based company in a quarter since the dot-com crash in 2001 and the second straight period of single-digit growth.

A week later, the latest results from Ottawa-based Shopify (NYSE:) also disappointed investors. Earnings per share for the trader-focused platform {{erl-953524|||} were much lower than analysts had expected. The company also provided a weaker outlook for adding new enterprise customers in 2022, saying seller growth on its platform would be “comparable” to 2021.

These disappointing earnings reports prompted a sell-off in these and other e-commerce stocks, suggesting investors don’t see a recovery in this segment anytime soon.

Since the company released its results on April 28, Amazon shares have dropped more than 14%. They closed Friday at $2,295.45, the lowest level for the stock in about two years. Stocks lost more than 30% in 2022.

The mighty rally in e-commerce inventories seen at the height of the COVID-19 lockdowns in 2020 is rapidly losing steam as these online retailers face a host of challenges, including a nearly four-decade high, rising labor costs, global chain bottlenecks and the ongoing pandemic.

no quick return

To offset some of those losses, Amazon earlier this month introduced a 5% surcharge for some of its US sellers, the first of its kind in the company’s history. And last quarter, Amazon raised the price of its US Prime membership for the first time in four years, from $119 to $139.

Despite these measures, Amazon management does not see a quick turnaround. CEO Andy Jassy said in a statement during the latest earnings report:

“It may take some time, particularly as we work with ongoing supply chain and inflationary pressures, but we are seeing encouraging progress on several dimensions of the customer experience, including performance. delivery speed as we are now approaching levels not seen since the months immediately preceding the pandemic in early 2020.”

Despite this setback on the earnings front, most Wall Street analysts remain optimistic about the company’s long-term prospects and its position as a leader in e-commerce. While some have adjusted their share price targets due to the slowdown in selling, many believe any lingering weakness offers a buying opportunity.

Of the 56 analysts surveyed by Investing.com, 52 had a buy rating on AMZN, calling it a “outperforming” stock.

AMZN - Analyst Consensus

AMZN – Analyst Consensus

Source: investing.com

Among those surveyed, the average 12-month price target was $3,676.75, a 60.18% increase in stocks.

One of the areas where the company continues to impress is its Amazon Web Services division, the company’s cloud computing unit. Currently, it generates most of the company’s profits. AWS saw a 37% increase in revenue to $18.4 billion. In fact, the count of commitments customers made to future AWS purchases increased 68% year-on-year to $88.9 billion.

Lowering its price target from $4,225 to $3,770 in a post-earnings note, Bank of America said cost pressures should be “manageable” and Amazon will see “significant” margin expansion. – party market.

Analysts at Cowen & Co. believe that Amazon has considerable pricing power when it comes to Prime. They noted that a further increase in membership fees could offset AMZN’s losses in the e-commerce segment.

Conclusion: Should we bet on the recovery of Amazon shares?

Amazon will struggle to expand its e-commerce business in the current inflationary environment, which will create significant headwinds for the company’s share price in the short term. That said, analysts are almost unanimous that the company’s dominant position in many areas of the digital economy is not threatened and that investors should see this period of weakness as a buying opportunity.

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