Amazon’s 30% drop this year signals the end of the e-commerce boom

  • Amazon’s first-quarter sales grew just 7%, compared to a 44% expansion a year earlier.
  • 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 so far been 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:), increased just 7% in the 2022 period, compared to a 44% expansion in the same period last year. This was the slowest growth rate for a Seattle-based company for a quarter since the dotcom crash in 2001 and the second consecutive period of single-digit growth.

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

Disappointing earnings reports sparked a sell-off in these and other e-commerce stocks, indicating that investors don’t see a recovery in the sector anytime soon.

Since the company released its results on April 28, Amazon shares have fallen more than 14%. On Friday, it closed at $2,295.45, the stock’s lowest in nearly two years. Stocks lost more than 30% in 2022.

The strong rally in e-commerce stocks seen at the height of COVID-19 lockdowns in 2020 is quickly running out as online retailers face a host of challenges, including soaring four-decade labor costs, global supply chain bottlenecks and an ongoing pandemic.

There is no quick turnaround

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

Despite these measures, Amazon management does not see a rapid turnaround. CEO Andy Gacy said in a statement during his latest earnings report:

“It may take some time, particularly as we operate through ongoing inflationary pressures and the supply chain, but we are seeing encouraging progress on a number of customer experience dimensions, including performance. Speed ​​of delivery as we are now approaching levels not seen since the months immediately prior to the pandemic in early 2020.”

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

Of the 56 analysts polled by Investing.com, 52 have a buy rating on AMZN, describing it as 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 area the company continues to impress is the Amazon Web Services division, which is the company’s cloud computing unit. It currently generates most of the company’s profits. AWS saw revenue increase 37% to $18.4 billion. In fact, the number of commitments customers made for future AWS purchases jumped 68% from the previous year, to $88.9 billion.

While it cut its price target from $4,225 to $3,770 on its post-earnings note, Bank of America said cost pressures should be “manageable” and Amazon would see “significant” marginal expansion. Beneficiaries from 2023 to 2025 thanks to the cloud, advertising and the third -party market.

Cowen & Co. analysts believe that Amazon has significant pricing power when it comes to Prime. They noted that an increase in membership fees could offset AMZN’s losses in the e-commerce sector.

Conclusion: Should we bet on a rebound in Amazon shares?

Amazon will struggle to grow its e-commerce business in the current inflationary environment, which will create significant headwinds for the company’s stock price in the near term. However, there is near consensus among analysts that the company’s dominant position 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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