S&P 500   3,852.36
DOW   32,920.46
QQQ   306.18
MarketBeat Week in Review – 1/30 - 2/3
“Future Fuel” will unleash $11 trillion wave of wealth (Ad)
State of the Union: Biden sees economic glow, GOP sees gloom
Why a new Alzheimer's drug is having a slow US debut
“Future Fuel” will unleash $11 trillion wave of wealth (Ad)
Sri Lanka marks independence anniversary amid economic woes
Tesla hikes price of Model Y after US alters tax credit rule
“Future Fuel” will unleash $11 trillion wave of wealth (Ad)
Disney World unions vote down offer covering 45,000 workers
Route to Super Bowl dangerous for Mexico's avocado haulers
S&P 500   3,852.36
DOW   32,920.46
QQQ   306.18
MarketBeat Week in Review – 1/30 - 2/3
“Future Fuel” will unleash $11 trillion wave of wealth (Ad)
State of the Union: Biden sees economic glow, GOP sees gloom
Why a new Alzheimer's drug is having a slow US debut
“Future Fuel” will unleash $11 trillion wave of wealth (Ad)
Sri Lanka marks independence anniversary amid economic woes
Tesla hikes price of Model Y after US alters tax credit rule
“Future Fuel” will unleash $11 trillion wave of wealth (Ad)
Disney World unions vote down offer covering 45,000 workers
Route to Super Bowl dangerous for Mexico's avocado haulers
S&P 500   3,852.36
DOW   32,920.46
QQQ   306.18
MarketBeat Week in Review – 1/30 - 2/3
“Future Fuel” will unleash $11 trillion wave of wealth (Ad)
State of the Union: Biden sees economic glow, GOP sees gloom
Why a new Alzheimer's drug is having a slow US debut
“Future Fuel” will unleash $11 trillion wave of wealth (Ad)
Sri Lanka marks independence anniversary amid economic woes
Tesla hikes price of Model Y after US alters tax credit rule
“Future Fuel” will unleash $11 trillion wave of wealth (Ad)
Disney World unions vote down offer covering 45,000 workers
Route to Super Bowl dangerous for Mexico's avocado haulers
S&P 500   3,852.36
DOW   32,920.46
QQQ   306.18
MarketBeat Week in Review – 1/30 - 2/3
“Future Fuel” will unleash $11 trillion wave of wealth (Ad)
State of the Union: Biden sees economic glow, GOP sees gloom
Why a new Alzheimer's drug is having a slow US debut
“Future Fuel” will unleash $11 trillion wave of wealth (Ad)
Sri Lanka marks independence anniversary amid economic woes
Tesla hikes price of Model Y after US alters tax credit rule
“Future Fuel” will unleash $11 trillion wave of wealth (Ad)
Disney World unions vote down offer covering 45,000 workers
Route to Super Bowl dangerous for Mexico's avocado haulers

Why is Amazon Stock Falling? Is the Sell-Off Overdone?

Key Points

  • Revenue was in line with estimates coming in at $127 billion versus the $127.5 billion projected by analysts.
  • Net income declined to $2.8 billion versus $3.1 billion in the previous quarter.
  • Earnings came in at 28 cents per share.
  • 5 stocks we like better than Amazon.com
Why is Amazon Stock Falling?

Amazon.com Inc. (NASDAQ: AMZN) came in better than expected for the third quarter. However, Amazon’s stock fell 13% during market hours as the company warned that the outlook for both the retail operations and AWS will be weaker than previously forecasted for the fourth quarter.

Why is Amazon stock falling? Management warned that sales are not living up to expectations despite the holiday season just around the corner and the outlook has worsened. This goes against the general e-commerce industry, where competitors such as Shopify Inc. (NYSE: SHOP), witnessed its stock rise significantly after both revenue and earnings beat expectations. Amazon’s management has forecasted that fourth quarter revenue will increase by anywhere from 2% to 8%, with revenue coming at $140 billion to $148 billion. This compares to the $155 billion forecasted by analysts, according to Refinitiv. Despite these headwinds, institutional investors have continued to bet on the long-term fortunes of the stock.

Revenue Comes in Stronger than Expected

Revenue increased by 15% in the third quarter, which means that Amazon has grown by double digits compared to previous quarters. Amazon’s new CEO, Andy Jassy, has in recent times responded to the macroeconomic headwinds by cutting costs and reducing capital expenditure. He also reduced warehouse capacity as the company looked to reassess spending.

Retail operations

Amazon’s growth has been affected primarily by the increasing levels of inflation, which have remained around 8% in recent months. The high inflation affects the retail business as consumers cut back on spending.


North American sales increased by 20% year over year (YOY), to $78.8 billion, compared to international sales, which declined by 5% to $27.7 billion but increased by 12% on a currency-adjusted basis. Sales are clearly increasing for the retail sector but a stronger dollar, which is likely to only get stronger, weighs on growth. Pessimism might be overdone because the current run rate is on a positive trajectory and consumer sentiment hasn’t cratered enough to justify market pessimism.

AWS

AWS slowed slightly, with growth coming in at 27% YOY. AWS has been the key to Amazon’s cash flow. Total revenue from the segment came in at 28% when adjusted for foreign exchange rates. The slowdown shouldn’t be surprising considering the technology sector has faced layoffs and demand slowed far more than other sectors. While 27% is still a high rate of growth, it's slower than what investors have gotten accustomed to.

Subscription Services

Subscription services have also slowed from high double-digit growth and are now in the single-digits following the trends of the likes of Netflix (NASDAQ: NFLX) and general content-based businesses, all of whom have seen a significant slowdown. Content faces both pricing pressure and high cost of production, which weighs on results.

Advertising Services

Advertising services have seen a strong return as growth increased to 25% for the quarter, up from the previous quarter, where growth came in around 13% to 15%. Advertising spending has pared back in recent times but Amazon’s execution has meant the performance of the segment is going against the general trend.

Amazon’s Financial Performance

Amazon’s stock fell as far as it did due to the significant decline in cash flow. Operating cash flow declined by 27% YOY, coming in at $39 billion. Meanwhile, capital expenditure increased by 14%. Despite decreasing repayment of principal leases, free cash flow fell to -$19 billion compared to $12 billion in the previous quarter. Amazon isn’t going to pare back its capital expenditures. Therefore, cash flow may remain under pressure for a while. Operating income has fallen to low single digits (2%) and cash flow will be under pressure for a while. Cash and marketable securities currently stand at around $96 billion so the company shouldn’t face any liquidity issues.

Amazon’s Outlook

Amazon’s outlook is clearly not as gloomy as the market expects, despite the current environment where currency headwinds and slowing retail sales weigh down results. The current average analyst target price is $175, representing a 58% upside. This might be on the higher side, with a far more reasonable target of $125 to $127, with an upside of around 15%. Price-to-sales fell to 2.44 as earnings per share took a significant hit. Net income margins are likely to get back to 7% to 8% in the longer term and the forward P/E will likely be around 30-35. The fourth quarter should come in better than investors believe, with the top line continuing to grow at a moderate pace. Income and cash flow are likely to be under pressure for a few more quarters.

Amazon.com is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.

Should you invest $1,000 in Amazon.com right now?

Before you consider Amazon.com, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Amazon.com wasn't on the list.

While Amazon.com currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

10 "Recession Proof" Stocks That Will Thrive in Any Market

Which stocks are likely to thrive in today's challenging market? Click the link below and we'll send you MarketBeat's list of ten stocks that will drive in any economic environment.

Get This Free Report
10

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Amazon.com (AMZN)
3.0477 of 5 stars
$103.39-8.4%N/A-385.77Moderate Buy$145.81
Netflix (NFLX)
2.396 of 5 stars
$365.90-0.3%N/A36.77Hold$342.36
Shopify (SHOP)
1.6404 of 5 stars
$52.93-1.3%N/A-20.88Hold$54.00
Compare These Stocks  Add These Stocks to My Watchlist 

Netflix Stock Rebound Opportunity? What Is Realistic Going Forward

Netflix has a strong track record of innovation and has shown the ability to adapt to changing market conditions.

Featured Articles and Offers

Search Headlines: