Is the End Near for Amazon?

In today's economy, who can afford to indulge in non-essential purchases? Most of the budget is consumed by necessities like rent, food, and gas. I recently visited one of Amazon's "Just Walk Out" stores in Manhattan, where shoppers can grab items and leave without checking out. To my surprise, I was the only customer inside. The employees greeted me with enthusiasm, as if I were a rare sight.

Despite this somber observation, let's address the core question: Is Amazon on the brink of collapse?

The answer is a resounding no. Amazon remains a formidable player in both retail and cloud computing sectors, and this could represent a prime opportunity for savvy investors to buy at a lower price before the Federal Reserve shifts its stance and reinstates liquidity.

It's essential to remember that in the long run, purchasing Amazon stock could prove beneficial. However, current market conditions suggest that retail investors trying to capitalize on Amazon's downturn might be handling a "falling knife."

The focus of quarterly earnings reports—such as the recent dismal one for Amazon—shouldn't solely be on headline numbers, even if those attract media attention. Instead, investors should closely scrutinize management's insights about future directions.

Dan Ives from Wedbush Securities highlighted the sentiment: “Amazon is struggling with guidance. The company is facing significant challenges.”

Recent events have compounded issues for Amazon since Jeff Bezos stepped down last year. Two significant unions have emerged, new CEO Andy Jassy faces accusations of union-busting, and AWS is slowing down its hiring initiatives. Moreover, predictions indicate a decline in winter shopping, coupled with increased competition from Walmart in online retail and advertising. Adding to this, Amazon laid off a record 99,000 employees in 2022, as we navigate a looming recession.

This is what we refer to as a “perfect storm.”

Examining the Data: Is Amazon's Future Promising?

While the data from Amazon's earnings report might appear slightly pessimistic, it isn't as dire as it seems. However, the overall sentiment surrounding Amazon contributes to a gloomy atmosphere, reminiscent of disheartened children on a school trip to a museum. This negativity doesn’t even factor in the staggering 20% flash crash, which has now reduced to 14%.

To illustrate the financial impact, consider this comparison with Amazon's investment in "The Lord of the Rings: Rings of Power":

1. The production cost was $1 billion for two seasons, equating to $500 million per season.
2. Amazon's valuation stands at approximately $1 trillion.
3. With a 14% loss, that translates to $140 billion.
4. Therefore, this amounts to 280 seasons of LOTR losses for Amazon—certainly not a positive outcome.

For those interested in the nitty-gritty, here’s a summary of the key figures from Amazon’s earnings report:

• Net sales: $127.10 billion (up 15% year-over-year, missing the estimate of $127.64 billion)
• Physical stores: $4.69 billion (up 10% year-over-year, beating the estimate of $4.68 billion)
• Online stores: $53.49 billion (up 7.1% year-over-year, missing the estimate of $54 billion)
• Third-party seller services: $28.67 billion (up 18% year-over-year, beating the estimate of $28.49 billion)
• Subscription services: $8.90 billion (up 9.3% year-over-year, missing the estimate of $9.18 billion)
• AWS: $20.5 billion (up 27% year-over-year, missing the estimate of $21 billion)
• North American sales: $78.84 billion (up 20% year-over-year, beating the estimate of $76.95 billion)
• International sales: $27.72 billion (down 4.9% year-over-year, missing the estimate of $29.28 billion)

So, is now the right time to invest in Amazon?

Bear markets are more about the retraction of gains rather than outright losses. Stocks remain elevated compared to their values five years ago (with the exception of Facebook). The S&P 500, for example, is still up approximately 47.51% over the last five years, illustrating that buy-and-hold strategies can yield success over time.

Given the current economic landscape, I'm inclined to purchase a few shares of Amazon, albeit with caution. The reality is that 2023 is likely to be a recession year. Conditions are tough now, and they may worsen. Companies are preparing for this downturn, which is why Amazon's stock is facing significant pressure. Tech stocks will likely continue to experience volatility, especially as the Federal Reserve raises interest rates amid economic uncertainty.

That said, I believe Amazon presents a solid investment opportunity. However, I’m not going all in, as the stock could easily decline further in the fourth quarter. The current economic climate feels akin to playing a video game on a difficult setting.

We must await signals from the Fed regarding a policy shift, brace for a recession, confront an energy crisis in Europe, accept prolonged inflation, and allow the “real economy” to stabilize.

In the end, we will emerge victorious, but for now, patience and strategic investment decisions are paramount. And instead of watching that lackluster LOTR adaptation, immerse yourself in the timeless classic.

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ARISE, ARISE, RIDERS OF WALL ST.

STOCKS SHALL BE SHAKEN

SHORTS SHALL BE SPLINTERED

A SORE DAY

A RED DAY

AND THE SUN RISES!

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While I’ve always aspired to be a financial advisor, I am not one. Therefore, it's crucial to conduct your own research rather than rely solely on online opinions. None of the content in this publication should be interpreted as financial advice.