Amazon shares fell by 13% from $2,904 to $2,540 in after-hours trading last night as it announced its first loss since 2015.
But is now a buying opportunity, or could further falls be imminent?
Amazon share price: Q1 2022 factors
1) Headline growth
Revenue increased by only 7% year-over-year to $116.4 billion. By contrast, Amazon’s revenue exploded by 44% to $108.5 billion in the same quarter last year. And it slumped to its first loss in seven years, losing $3.8 billion compared to its $8.1 billion profit of Q1 2021.
Moreover, Amazon only expects revenue to grow by 3-7% to between $116 and $121 billion in Q2. And operating income is expected to come in between a $1 billion loss and $3 billion gain, compared to its $7.7 billion gain of Q2 2021.
However, some perspective is important. Amazon’s full-year net sales rose by 22% to $469.8 billion in 2021. Growth at this pace during supply chain disruption, amid low consumer confidence and a full-blown cost-of-living crisis, may be unrealistic in 2022.
CEO Andy Jassy, who recently announced a $10 billion share buyback scheme, may simply be steering the ship through choppy waters before attempting to increase growth further.
2) Amazon Web Services
Amazon’s emerald is its Amazon Web Services (AWS) cloud computing division. Jassy highlighted that ‘with AWS growing 34% annually over the last two years, and 37% year-over-year in the first quarter, AWS has been integral in helping companies weather the pandemic and move more of their workloads into the cloud.’
Grand View Research predicts the global cloud computing market will be worth over $1.5 trillion by 2030. With clients from Boeing to Bundesliga, AWS could power Amazon’s revenue growth for years to come, if it can maintain market share.
3) Stock split
Its first since 1999, Amazon is planning a 20-for-1 stock split that could mark a new phase for the company’s strategy.
Whole shares will become more affordable to the masses, which will drive up cash for investment whilst monetary policy tightens. In addition, the move could drive up its flagging market cap, as Amazon’s share price has fallen by 31% since mid-November to $2,540 at the time of writing.
It could also see the stock enter the exclusive hall of the Dow Jones, gaining passive investor interest and blue-chip prestige in the process.
This month, Amazon workers in Staten Island in New York became the first to vote for unionization in the United States. A second vote at another New York facility is being counted next week, and the results could send a ripple effect through Amazon’s 1 million-strong workforce.
It’s worth noting that inflation in the US is even higher than in the UK at 8.5%, and US workers enjoy far fewer labour rights than their UK counterparts.
However, Jassy believes Amazon is ‘no longer chasing physical or staffing capacity, our teams are squarely focused on improving productivity and cost efficiencies throughout our fulfillment network.’ He could be pushing back against the power imbalance caused by the labour shortage.
And Amazon noted that it ranks first in the US on LinkedIn’s annual Top Companies list for career growth, as well as second in Fortune’s list of World’s Most Admired Companies.
5) Expansionary efforts
Amazon has come a long way from its origins as an online bookseller. But not every innovation has worked. Its near 20% stake in EV upstart Rivian is key to this quarter’s loss, as Amazon lost $7.6 billion from Rivian’s share price collapse.
But Amazon is also active in the streaming space. Upcoming Lord of the Rings and Thursday Night Football projects are certain to increase subscriber numbers. And its Alexa and Ring smart home devices continue to sell.
Then there are the emerging businesses. Amazon’s Care virtual health service is now available 24/7 throughout the US, with in-person expansion ongoing in key cities.
But Project Kuiper, Amazon’s ‘initiative to increase global broadband access using a constellation of satellites in low Earth orbit’ is arguably more exciting. In association with Arianespace, Blue Origin, and United Launch Alliance, Amazon has secured 83 launches, sufficient to launch 3,236 satellites into space.
This comprises ‘the largest commercial procurement of launch vehicles in history,’ and puts Amazon into direct competition with SpaceX’s Starlink network for the 21st-century space race.
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