Amazon’s 30% plunge this year indicates the e-commerce boom is over

  • Amazon’s first quarter revenue grew just 7%, compared to a 44% growth the year before.
  • Despite this setback on the earnings front, the majority of Wall Street analysts remain optimistic about the company’s long-term prospects.
  • Bank of America (NYSE:) expects a “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 has been one of the safest areas of the digital economy to date, is starting to show signs of weakness after two years of notable gains.

The revenue of the world’s largest online retailer, Amazon.com (NASDAQ:), grew just 7% in the 2022 period, compared to a 44% growth in the previous year. It was the Seattle-based company’s slowest growth in a quarter since the dot-com meltdown 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 merchant-focused platform {{erl-953524|||} were much lower than analysts had expected. The company also gave a weaker outlook for adding new enterprise customers in 2022, saying merchant growth on its platform would be “similar” to 2021.

These disappointing earnings reports led to sell-offs in these and other e-commerce stocks, suggesting investors aren’t seeing a recovery in this segment anytime soon.

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

The powerful rally in e-commerce stocks at the height of the COVID-19 lockdowns in 2020 is rapidly exhausting as these online retailers face a myriad of challenges, including nearly four decades of soaring labor costs, global supply chain bottlenecks and the ongoing pandemic.

No fast handling

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

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

“It may take time, especially as we work on continued inflation and supply chain pressures, but we are seeing encouraging progress on a number of aspects of the customer experience, including performance and speed of delivery as we now approach levels we have seen since the haven’t seen in months.” immediately prior to the pandemic in early 2020.”

Despite this revenue setback, the majority of 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 price targets for the stock due to the slowdown in sales, many believe that any lingering weakness represents a buying opportunity.

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

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 the stock.

One of the areas where the company continues to impress is its Amazon Web Services division, the company’s cloud computing unit. She currently generates most of the company’s profits. AWS saw revenue rise 37% to $18.4 billion. Indeed, total commitments made by customers for future AWS purchases are up 68% from a year earlier, to $88.9 billion.

While Bank of America lowered its price target from $4,225 to $3,770 in a post-profit note, Bank of America said cost pressures should be “manageable” and Amazon will see “significant” margin expansion from 2023 to 2025. -party market.

Analysts at Cowen & Co. believe that Amazon has significant 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 a Rebound in Amazon Stocks?

Amazon will struggle to grow its e-commerce business in the current inflationary environment, which will cause significant headwinds for the company’s stock price in the near term. That said, analysts are almost unanimous that the company’s dominance in many areas of the digital economy is not under threat and that investors should view this period of weakness as a buying opportunity.

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