Source: PaxForex Premium Analytics Portal, Fundamental Insight
The stock market saw a significant drop in 2022, and many companies suffered losses when faced with macroeconomic factors. Even with its huge market share in many industries, Amazon has not escaped this fate, with its stock down almost 50% over the past year.
The stock's collapse in 2022 has many potential investors wondering if now is a good time to buy, as shares of some of the world's most expensive companies start the new year with another decline.
However, determining whether Amazon stock is worth buying in 2023 is difficult. The company has had a tougher year than most, hitting its e-commerce business and free cash flow hard. Meanwhile, recent developments indicate that Amazon is getting ready for more drops amid the coming recession. So is Amazon stock worth buying this year? Let's get to the bottom of it.
Last week, Amazon CEO Andy Jassy announced that the company has increased the number of planned layoffs to 18,000 employees. This decision came after other cost-cutting measures in 2022, such as closing or canceling the construction of dozens of warehouses, hiring freezes, and closing the Amazon Care telemedicine brand.
Of course, Amazon isn't the only company cutting its budgets. Other big tech companies, such as Microsoft and Salesforce, have also revealed intentions to cut staff, and Alphabet CEO Sundar Pichai began cutting company-wide spending in September 2022. That Amazon is not alone in its problems is heartening. Still, the company hasn't fared as well as its peers over the past year.
During the same period that Amazon's stock has fallen 46 percent, Microsoft and Alphabet's stocks have fallen 28 percent and 35 percent. Looking at the companies' free cash flow as of Sept. 30, Amazon had negative $26.3 billion, while Microsoft and Alphabet posted between $62.5 billion and $63.3 billion.
Apart from budget cuts, AMZN is poised for further declines by taking out an $8 billion short-term loan in the first week of January. The company finished last quarter with about $35 billion in cash and $59 billion in long-term debt, making the relatively small $8 billion loan seem unnecessary.
But after a year in which the company made significant losses in its e-commerce business, reporting a $2.9 billion operating loss in the third quarter of 2022 between its North American and international segments, Amazon appears to be spending cash quickly. Thus, a loan could help the company overcome potential hurdles in the coming months.
Last year was a memorable one for Amazon, but there is still hope. The company continues to be a market leader in several industries where there is still plenty of room for growth in the long run.
After booming online sales in 2020 and 2021, when the pandemic made online shopping an absolute must, last year was absolutely different. Comparisons to last year's period and economic factors led to a downturn in the industry and losses for Amazon. Nevertheless, the bad economic environment won't last eternally, and Amazon's 37.8 percent market share in the industry will likely eventually pay off.
As per Grand View Research, the e-commerce market was $9.09 trillion in 2019 and will grow at a compound annual growth rate (CAGR) of 14.7% through at least 2027. And Amazon is in a good position to take advantage of this growth.
In addition, the most interesting part of Amazon's business is its Amazon Web Services (AWS) cloud computing platform. As of Q3 2022, the platform had a 34% market share in a booming industry. In 2021, the cloud computing market was $368.97 billion and will grow at a 15.7% compound annual growth rate through 2030. Amazon is already profiting from industry growth: AWS revenue grew 27% YoY to $20.5 billion in Q3 2022 and brought in 100% of the company's operating income.
Despite the promising long-term outlook, Amazon stock is hard to recommend in 2023. A price-to-earnings ratio of 80 means that the stock is still expensive relative to its financial performance.
Ultimately, it's best to be cautious when considering an investment in Amazon. Either prepare to hold the stock for more than five years, or look to more attractive buys such as Alphabet and Microsoft, which trade at ratios of 17.6 and 24.5, respectively.
As long as the price is below 96.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 88.94
- Take Profit 1: 81.00
- Take Profit 2: 75.00
Alternative scenario:
If the level of 96.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 96.00
- Take Profit 1: 103.00
- Take Profit 2: 108.50
