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Shares of the world’s largest e-commerce retailer, Amazon (NASDAQ: AMZN), are now down 55% from all-time highs, valuing the company at a market cap of $896 billion. Amazon shares closed trading at $84.92 yesterday, the lowest price since March 16, 2020.
Amazon stock is down 49% in 2022, its worst year since the dot-com crash in 2000. The tech giant had then seen an 80% fall in share prices.
Similar to other tech stocks, Amazon is currently wrestling with challenges related to soaring inflation, supply chain disruptions, and higher interest rates. In fact, the tech-heavy Nasdaq Composite index is likely to trail the S&P 500 index in consecutive years for the first time since the dot-com bubble.
Shares of Amazon and other e-commerce companies gained pace at the onset of COVID-19 due to the worldwide shift towards online. But as economies reopened, Amazon experienced a deceleration in top-line growth for its core retail business.
Amazon spooked Wall Street after it forecasted sales between $140 billion and $148 billion in Q4, indicating a year-over-year growth rate between 2% and 8%. Comparatively, analysts expected Q4 sales at $155.15 billion.
To tide over an uncertain environment, Amazon announced a hiring freeze while laying off thousands of employees to reduce its cost structure.
Will AMZN stock price resurge in 2023?
Amazon and most other tech stocks are likely to remain under the pump in the near term and are unlikely to recover overnight. But Amazon is well poised to weather the ongoing downturn and stage a rebound once the market recovers.
Amazon continues to lead multi-billion-dollar markets such as online retail and public cloud, both of which are growing at a healthy pace. While demand for e-commerce peaked amid the pandemic, Amazon’s online store increased sales by 13% year over year to 53.5 billion in Q3 of 2022. Its third-party seller revenue also rose by 23% to $28.7 billion in the September quarter.
The global e-commerce market might surpass $55 trillion by 2028, providing Amazon with enough room to grow its sales in the medium term.
Amazon’s core business is a low-margin segment. But this will be offset by growth in Amazon Prime and online advertising, which clocked revenue of $8.9 billion and $9.5 billion, respectively, in Q3.
Amazon Web Services, which is the company’s public cloud division, enjoys a 32% market share globally. In the last four quarters, AWS reported revenue of $76.5 billion, an increase of 34% year over year.
Analysts expect the cloud computing market to expand by 15.7% annually through 2030 to touch $1.55 trillion. So, if AWS can grow by 15% each year in the next year, annual sales for this business will surge by over $154 billion by 2027.
Further, Amazon Web Services generates the majority of the profits for Amazon. In fact, AWS ended Q3 with an operating margin of 30%. If the company can maintain its operating margin and market share, annual profits for the cloud business will be close to $45 billion in the next five years.
What next for Amazon stock price and investors?
The ongoing pullback provides investors the opportunity to buy a quality tech stock at a depressed valuation. Wall Street expects Amazon to increase sales by 8.6% to $510.3 billion in 2022 and by 10.5% to $564 billion in 2023.
So, AMZN stock is priced at 1.6x forward sales, which is quite reasonable for a high-flying growth stock. Currently, Amazon stock price is trading at a discount of 70%, given consensus price target estimates.
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