The year 2023 is finally here. Amazon (AMZN 1.78%)stock price will drop 50% in 2022. The company will face headwinds in the short-term for his e-commerce business, but the long-term future looks bright.
With that said, let’s discuss why investors might want to bet on tech giants being overthrown in 2023.
What went wrong with Amazon in 2022?
Like many e-commerce companies, Amazon surged during the COVID-19 pandemic, when lockdowns and travel restrictions led to an online shopping boom. But as the crisis subsided, Amazon realized: had expanded too much Anticipate unrealized growth. Further challenges such as inflation have also hit its operations by increasing the cost of doing business while eroding the purchasing power of its customers.
Third quarter net sales increased 15% to $127.1 billion. The numbers aren’t scoffing for such a big company, but earnings are significantly weaker than in previous periods. Total operating profit he fell 49% to $2.5 billion, sacrificing margin-squeezing challenges.
As usual, Amazon’s cloud computing business, Amazon Web Services (AWS), is making up for the slowdown in domestic and international e-commerce. However, AWS grew its revenue by 27% to $20.5 billion, which is a significant slowdown from the 39% growth it recorded in the same period last year. While AWS provides excellent diversification of Amazon’s revenue streams, it is not entirely immune from the macroeconomic challenges that are hitting the company as a whole.
Why does the future look bright?
For better or worse, the 2022 bear market will more cyclical During times when the economy is more uncertain than many investors expected, AWS customers may delay their migration to the cloud or switch to lower-cost tiers of services to save money. This is a process Amazon management called “cost optimization” in its third-quarter earnings report. Challenges such as rising fuel costs, wage inflation and declining consumer confidence are also hitting e-commerce.
The good news is that cycles don’t last forever. Also, Amazon’s long-term theme remains intact, as its sheer scale creates an economic moat that gives it a competitive advantage over competitors in the same industry.
E-commerce adoption is a likely long-term megatrend as technology and logistics infrastructure improve. Amazon management also believes that public and private sector organizations are in the early stages of moving to cloud-based data storage and services.
Amazon is also working on new growth drivers that could help ensure long-term success and diversification. Acquired MGM Studios For $8.5 billion, it gains access to a library of 4,000 films and 17,000 TV episodes, along with talent and industry connections that claim a larger portion of the world’s box office. Amazon plans to spend him $1 billion to produce 12-15 movies per year.
Investing in a bear market
Investing in a bear market It’s hard because no one tries to catch a falling knife. Macroeconomic challenges such as inflation appear to be easing, but it remains to be seen how far the Federal Reserve will need to raise interest rates or whether the US will slip into recession in her 2023. still unknown.
But in the long run, Amazon looks like the winner. E-commerce and cloud computing are growth industries in which Amazon boasts a strong moat. The company is also working hard to expand its business and diversify into new opportunities such as movie entertainment.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Ebiefung has no positions in any of the stocks mentioned. The Motley Fool has a position on and recommends Amazon.com. The Motley Fool’s U.S. headquarters has a disclosure policy.