Amazon Stock Pre-Holiday Deep Dive: AMZN Outlook Fall 2022

Key Takeaways

• This used to be the busiest time of the year for Amazon due to all of the holiday shopping; however, Amazon recently stock dropped with wilting expectations for the remainder of the year.
• Amazon stock closed -42.20% YTD November 14 and Amazon Web Services (AWS) remains the most profitable division for the company.
• Even though Amazon’s revenue grew 15% in the third quarter, there are concerns that profits could be at zero for the fourth quarter due to the recession fears impacting consumer spending.

The e-commerce giant had become the one-stop shop for all of our purchases, from groceries to Christmas gifts. However, there are concerns this year that Amazon won’t be as profitable during the holiday season as they have been in the past due to inflation and fears of a pending 2023 recession.

The current macroeconomic factors are compounded by increased competition as Walmart has launched its own delivery service and in-person shopping has returned again.

We will take a pre-holiday deep dive into the Amazon stock to see what’s in store.

How is Amazon performing today?

Amazon recently released its earnings report for the third quarter. Here are some of the key highlights from Amazon’s third-quarter financial results.

• Amazon reported revenue of $127.1 billion, a 15% increase year-over-year.
• Net income decreased to $2.9 billion or $0.28 per share.
• Amazon Web Services brought in sales of $20.5 billion, +27% year-over-year.
• There are concerns that the profits for the fourth quarter will be $0.
• Amazon’s expenses rose about 18% to $124.6 billion, making this the fifth consecutive quarter where expenses increased quicker than revenue.
• Amazon stock dropped as much as 14% in after-hours trading after they admitted that they were expecting lighter holiday sales.

Despite reporting mostly positive financial results, the stock price dropped due to a gloomy outlook for the rest of the year, due to macroeconomic factors that are impacting consumer spending.

What’s next for Amazon?

With the holiday season approaching, here’s what you can expect from Amazon.

Amazon Prime perks

Amazon Prime is often used for fast and free shipping, but many subscribers enjoy the other benefits. Amazon just announced that they would increasing the amount of content available on the Amazon Music platform by adding about 98 million ad-free songs. Earlier last year, Amazon stated that the Prime service had 200 million users worldwide. This service was growing rapidly until new competitors stepped way up.

Competition with Walmart

Many consumers are now switching over to Walmart for online shopping. It’s estimated that Walmart+ has around 11 million members with many online shoppers switching to this value-centric competitor. The service has only been around since September of 2020, but many folks have already switched over. Chris Cracchiolo, the general manager of Walmart+, stated that the service attracted many budget-conscious shoppers, with about a quarter of the membership receiving some sort of government assistance. There’s also the increased competition coming with the return of in-person shopping as folks are no longer restricted from going out for their shopping needs.

Amazon Venmo partnership

Amazon announced that they would be rolling out a Venmo payment option in the US by Black Friday. This Amazon and Venmo partnership could be a significant deal if many folks decide to start using the e-commerce platform now that they can use their Venmo accounts instead of a credit card. We will continue to monitor this partnership to measure its effect.

Should you invest in Amazon?

Amazon’s stock price closed at $89.98 on November 8, which means that the price is down about 47% for the year, and has dropped sharply from its all-time high of $175.35 in late 2021. Amazon hit the stock market with a share price of $18 in 1997, so the company is definitely an enticing buy for those who have been looking to invest in technology. While Amazon stock has dropped, it’s worth mentioning how the entire market has taken a hit in 2022. However, there are concerns that Amazon stock has peaked.

There are a few factors that you should consider before investing in Amazon right now.

Amazon Web Services (AWS) continues to be profitable

AWS is the only profitable division at Amazon since the cloud-computing platform is used by major companies like Netflix and Verizon for hosting its services. There’s a chance you use a service in your everyday life that’s run on the AWS platform.

AWS’s services are acquired when companies sign financial deals with Amazon, payments being made over the lifetime of the contract. According to Amazon, they currently have $104.3 billion in future contract revenue to collect from this sector. Since AWS has brought in net sales of $58.7 billion in the first three quarters of 2022 alone, it looks like the company will continue to rely on this profitable division.

That said, AWS’s growth has slowed down slightly lately. Despite remaining profitable, the growth rate fell as there are fears that enterprise customers are going to slow down investment as consumer spending decreases. While AWS brought in a profit of $5.4 billion, analysts were expecting a 31% year-over-year growth in this sector.

The current macroeconomic environment

As we’ve covered extensively in other articles, the current macroeconomic environment impacts almost every industry. With soaring inflation and persistent rate hikes, the market has plenty of uncertainty. Amazon is especially sensitive to inflationary pressures and the return of in-person shopping since pandemic restrictions have been loosened over the past year.

You can’t ignore the role of high inflation on consumer spending. Will folks continue to spend money on discretionary purchases? This is something that we’re going to have to continue paying attention to.

To make matters worse, Amazon is also impacted by rising fuel costs which are increasing the expenses associated with transportation and warehouses. The company has to initiate cost-cutting measures to combat decreased consumer spending. They had to delay warehouse openings, freeze hiring, and shut down experimental projects.

In addition, changes to foreign exchange rates with the strengthening of the US dollar impacted sales in other countries. They apparently had a revenue reduction of about $5 billion due to this issue alone. There’s no telling how this will change in the coming quarter as the foreign exchange rates have fluctuated lately.

Light holiday sales forecast

While we don’t know for sure how consumer shopping will respond this holiday season, because we still haven’t officially entered a recession, Amazon confessed that the holiday sales forecast wasn’t looking good. The company predicted that revenue would be between $140 to $148 billion in the final quarter, well below the original analyst estimate of $156 billion. Even worse, it’s feared that profits could be at zero due to the rising expenses in other sectors.

Shares dropped about 14% in the after-hours trading after Amazon adjusted expectations that holiday sales would be light. Many independent retailers on Amazon are also bracing for a slower holiday period than usual.

How should you be investing?

As you can imagine, right now is a difficult time to decide which individual companies to invest in as the market volatility shows no signs of stopping. As the world continues to deal with the fears of a pending recession, there are fears that companies will report much lower earnings than reported which will lead to even more stock market sell-offs.

If you still want to invest during times of high inflation and overall market uncertainty, you may want to take a look at Q.ai’s Inflation Kit to protect your investments. You can activate Portfolio Protection anytime to help protect your gains and reduce your losses, no matter what industries you invest in.

Bottom Line

While Amazon is synonymous with online shopping, right now may not be the ideal time to invest in Amazon stock due to all of the economic uncertainty. The Amazon stock price is reaching surprisingly low levels despite increasing revenue in Q3. These fears of lighter holiday spending could cause the stock to stumble further as investor confidence wanes.

Download Q.ai today for access to AI-powered investment strategies.