Amazon  (AMZN) - Get Free Report shares have been struggling to keep their value amid the stock market sell-off. That's especially the case following the company's third-quarter (Q3) earnings release.

Rampant inflation has trimmed the margins of Amazon's retail segment. That's led to the depletion of the company's operating cash flow.

And despite Wall Street’s bullishness toward the stock, things have just gotten worse. Amazon Web Services (AWS), which many analysts thought was an inflation-proof cash cow, has finally shown signs of fatigue.

Still, analysts argue that Amazon’s fundamentals remain intact. If so, this makes the stock a bargain at its current price.

Here's why November could be the time to join the Amazon bull club.

A Solid Buy-and-Hold Thesis

Despite every macroeconomic headwind Amazon is facing in 2022, analysts are confident that the company is still poised for long-term growth.

According to Raymond James’ Aaron Kessler, e-commerce growth prospects and cloud industry momentum are some of the reasons he remains bullish on AMZN.

“While we expect a more challenging growth outlook near-term, we remain positive on long-term growth for both retail and AWS with improving margins over time as Amazon focuses on productivity improvements,” Kessler said.

Telsey’s Joseph Feldman seems to endorse the Raymond James analyst’s thesis, adding that Prime members’ high loyalty is likely to keep fueling the Amazon ecosystem. That should “enable the company to remain a share gainer over time,” he said.

Cheaper, but Not the Cheapest

In terms of valuation, November could be an interesting entry point for investors looking to acquire some AMZN shares. The company’s price-to-earnings (P/E) multiple has been at its lowest point since mid-2021, indicating the stock is cheaper than usual.

Another valuation multiple that corroborates with Amazon’s long-term prospects is the company’s EV/EBITDA (enterprise value to earnings before interest, taxes, depreciation, and amortization).

According to Seeking Alpha’s database, Amazon’s EV/EBITDA for the trailing 12 months (TTM) was nearly 20.0. This same multiple is expected to drop to 14.6 for the 12 months forward.

If so, this would mean that Amazon is projected to grow its EBITDA faster than its enterprise value is expected to increase — which translates to a cheaper stock in the future.

What’s AMZN's Price Target?

Wall Street is considerably less bullish on Amazon's stock than they were two weeks ago.

Before the Q3 earnings disclosure, the average price target on Amazon was $170. After the conference, the average target fell to $140.

In fact, Telsey’s Joseph Feldman's price target for AMZN is the same as the market average. The analyst rated the stock as a buy with a $140 target (which he has downgraded from $150).

Aaron Kessler’s price target dropped even more drastically: The Raymond James analyst lowered his target from $164 to $130.

As Wall Street grows less bullish on the stock and investors become more careful in inflationary times, investors may find favorable opportunities during the sell-off.

Still, it's important to remember that Amazon's stock can drop even more sharply in the upcoming months.

Therefore, any investor willing to purchase some AMZN shares should know their own risk profile.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Analysts and investors have been gloomy about Amazon  (AMZN) - Get Free Report ever since the company released weak guidance for the fourth quarter. Many have cut their price targets for AMZN in the near term — including Ivan Feinseth of Tigress Financial.

Feinseth lowered his price target on the stock from $232 to $192 per share.

Still, the new price target implies that there's a 93% upside potential with Amazon's stock.

In this article, the Amazon Maven will take a look at what Feinseth had to say about AMZN to see if the stock is really worth double its current price.

(Read more from Amazon Maven: Amazon (AMZN) Q3 Earnings: What the Analysts Are Saying)

(The Value of the Prime Membership Program) - Get Free Report

Tigress Financial's Ivan Feinseth wrote that he lowered his price target to account for adjustments to the stock's valuation and growth rate. But he still believes the Seattle-based e-commerce juggernaut is undervalued.

One of the reasons why he thinks there's still room for growth in AMZN is the company's Prime membership momentum.

There are two reasons to be bullish on Prime. First, the membership program increases Amazon's sales. According to research conducted by Bank of America in 2020, Prime members are four times more likely to shop on Amazon than non-Prime members.

According to Statista, the e-commerce industry is expected to nearly double in size within the next five years, growing from an estimated $905 billion in 2022 to $1.7 trillion in 2027.

Because an estimated 63% of U.S. households have Prime memberships, it's likely that Amazon will be able to dominate most of that expansion here in the U.S.

The second reason to be bullish on Prime is due to Amazon's pricing power over membership.

Recently, Amazon raised its annual fee for the service from $119 to $139.

The company hasn't disclosed how much revenue that price increase generated, nor how much was added to its bottom line. However, JPMorgan’s Doug Anmuth has estimated that the price hike could create an extra $3 billion for the company’s top line.

AWS: Amazon's Cash Cow

Ivan Feinseth also likes AMZN due to the company's most valuable asset: Amazon Web Services (AWS), the company's cloud-computing unit. So far, AWS has rescued Amazon's consolidated profit-and-loss statements.

Despite generating only 13% of Amazon's global revenue in 2021, AWS represented 74% of its entire operating income.

And the long-term perspectives for the company are very positive.

The cloud-computing market is poised for expansion: According to a Markets and Markets report, the industry is projected to grow from $545 billion in 2022 to $1.2 trillion by 2027.

If Amazon can hold onto its market share (currently one-third), investors should expect a considerable addition to the company's coffers.

Still, we must acknowledge that this so-far “inflation-proof” segment raised a red flag in the third quarter. AWS grew only 28%, slightly slower growth than in previous quarters. This has made analysts a little cautious about how this unit will perform in the upcoming quarters.

The Google Inside Amazon

And then there is Amazon’s advertising business, which might be the company’s next net income-generating Holy Grail.

Amazon doesn't report its advertising cost breakdown (it's buried within the company's e-commerce results). However, from looking at Alphabet  (GOOGL) - Get Free Report and Meta  (META) - Get Free Report, we know that advertising is a very profitable business.

So far, Amazon’s advertising arm has surpassed YouTube, generating $31 billion in revenue in 2021. And the good news is that the marketplace has been growing at a steady pace: In the third quarter, for instance, Amazon ad sales grew 30% year over year.

Amazon's Most Bullish Bull?

Wall Street is almost unanimously bullish on Amazon. No one disagrees that the e-commerce company is poised for growth in the long term.

However, the question is, by how much?

According to TipRanks, the average price target for Amazon stock is $140, which makes Ivan Feinseth one of the biggest Amazon bulls on Wall Street.

It's true the Tigress Financial analyst lowered his price target on the company after the third-quarter earnings conference. But he sees the recent sell-off as a "major" buying opportunity.

Amazon  (AMZN) - Get Free Report disclosed gloomy results for its third quarter. And its fourth-quarter guidance made analysts even more pessimistic about the company’s performance in the short term.

The result: Amazon's stock lost 22% of its value, dropping to $90 per share within a week.

Still, Wall Street thinks Amazon’s struggles are temporary issues that will sooner or later fade away.

Are investment firms way less bullish than they were two weeks ago? Absolutely. According to TipRanks, the average price target on AMZN fell from $170 to $140 after the company released its results.

Yet $140 is still a very bullish target because it implies a 60% upside. Here's why Wall Street still recommends Amazon's stock.

Is There a Crack in Amazon's AWS Armor?

Amazon had hoped to resist the tough macroeconomic conditions by leveraging its pricing power. But that hasn't worked.

As a result, Wall Street turned its attention to the company's most profitable segment: Amazon Web Services (AWS). The bad news is AWS might be the next victim of the macroeconomic headwinds.

According to Mizuho Securities’ James Lee, the cloud computing segment’s slowdown was "the biggest surprise" of the quarter. AWS presented lower-than-30% growth for the first time since the fourth quarter of 2020.

If Amazon’s cash cow keeps losing traction amid rampant inflation, Amazon's stock will likely keep bleeding.

RBC Capital’s Brad Erickson seems to agree. As he stated, “AWS is finally seeing pressure, retail has slowed to start out [the fourth quarter], and while the company’s progressing against its margin leverage initiatives, the revenue softness significantly mutes the margin expansion story for the foreseeable future.”

Wall Street Still Thinks Amazon Is a Long-Term Winner

Truist’s Youssef Squali still puts his faith in Amazon for the long run. He maintains the company is a long-term winner, despite the macroeconomic woes.

“We view these challenges as temporary and see AMZN with the power of Prime, AWS leadership, and rapidly growing ad business as best positioned to ride these multiple secular growth trends in [fiscal year 2023 and] beyond,” Squali wrote.

Morgan Stanley’s Brian Nowak seems to agree. He believes Amazon will remain an e-commerce and cloud titan for the long term.

“While the slowdown is likely coming, in our view, nothing has structurally changed about AMZN’s retail and AWS's long-term positioning and opportunity,” he wrote.

Lower Price Targets, Higher Upside

Although Wall Street analysts lowered their price targets on AMZN, the implied upside is higher. This means a potentially better opportunity for investors.

For instance, Truist lowered its price target from $155 to $135 after Amazon’s third-quarter earnings disclosure but raised its implied upside from 40% to 48%.

As the sell-off keeps affecting Amazon’s market capitalization in the short run and analysts believe the Seattle-based titan still preserves its fundamentals, bullish investors with an appetite for risk might find this a good opportunity to acquire some AMZN.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Last week, Amazon  (AMZN) - Get Free Report reported third-quarter financial results that made Wall Street bearish (or at least considerably less bullish) about the stock’s future. The Seattle-based company presented not only weak e-commerce results, but also slightly lower-than-expected growth for its cloud computing arm, Amazon Web Services (AWS).

As a result, Amazon's stock dropped 13% the day following the annoucement, hitting a $98 low and breaking the $100 limit for the first time since April 2020.

But despite lowering their price targets, most Wall Street analysts still consider the stock a buy. Could this be a good opportunity for acquiring some Amazon shares?

Amazon's Inconsistent E-commerce Business

For several quarters, Amazon's e-commerce sales results have been weak compared to its highly profitable AWS business.

In the most recent quarter, Amazon's North America online retail segment brought in nearly $79 billion in revenue (implying an impressive 20% growth).

Still, it presented an operating loss, in contrast with the 2021 third quarter’s small profit.

However, the real miss was in Amazon's international segment. The company reported an even higher operating loss compared to last year’s.

“It was mostly in international where we saw the biggest impact, and we think that is tied to a tougher recessionary environment there," said CFO Brian Olsavsky. 

"Compared to the U.S., it's worse in Europe right now. The Ukraine war and the energy crisis issues have really compounded in that geography.”

Still, I wouldn’t bet on Amazon’s international segment becoming a revenue driver for the company in the short run (maybe not even for the long term).

It's true that, foreign currency impacts aside, the international segment grew its net sales by 12%.

But net sales were flat for the previous three quarters and have been showing nothing but operating losses. This segment simply seems too inconsistent.

AWS's Decreased Profit Margin

The Amazon Web Services segment remained the star of night. Amazon’s cash cow has grown its net sales from $16 billion to $20 billion year over year. Operating profits also increased, from $4.8 billion to $5.4 billion.

AWS’s secret sauce for being able to grow sustainably amid a potential recession could be the potential recession itself: Amazon's cloud arm offers its clients the possibility to turn a fixed cost related to data center’s processing power into a variable and lower expense. In times when cash is running short, companies look to cut their costs.

Still, AWS’s profit margin dropped from 30% to 26%. According to CFO Olsavsky, this comes mostly from Amazon’s stock-based compensation line and energy costs, because both wages and energy prices increased in 2022.

“We did see a deceleration or a drop in operating margin sequentially quarter over quarter. The broad disclaimer on AWS margins is that they will fluctuate over time as we balance investments versus renegotiating pricing with the long-term customer commitments, all as headwinds to the business, offset by increasing productivity and efficiencies in our data centers, which drive profitability,” Olsavsky explained.

Is AMZN a Buy?

Wall Street thinks Amazon is still a buy. Of the 33 analysts covering the stock listed on TipRanks, 32 rate the stock as overweight. The remaining analyst believes it's a hold.

Still, the third-quarter earnings have shaken the Amazon Bull Club: Before the earnings conference, the average price target was $170; after the event, it dropped to $140.

As Amazon remains well positioned in two largely expanding fields — online retailing and cloud computing — this could be an interesting entry point for investors who wish to invest in Amazon for the long run.

However, for investors who aren't convinced yet, there will probably be new opportunities. Because the company's guidance for fourth-quarter earnings was rather disappointing, Amazon's stock turnaround might have to wait another year or two.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Amazon's  (AMZN) - Get Free Report stock performance in 2022 has been controversial. Wall Street analysts were confident that the company would see a turnaround in the second half of 2022 as inflationary pressures gradually eased.

However, inflation didn't ease, and Amazon's stock hasn't risen. But as fearful investors sell off their shares in order to avoid further losses, the Amazon bulls are seizing the opportunity to increase their holdings.

What's at the heart of their bullish sentiment? The company's cloud-computing arm, Amazon Web Services (AWS).

(Read more from Amazon Maven: Amazon's (AMZN) Second Prime Day: A Wasted Effort?)

The Inflation-Proof AWS

Even though the Seattle-based juggernaut has been struggling to get through the current macroeconomic scenario, its cloud arm has steadily grown by at least 30% every quarter so far. And according to Seeking Alpha contributor App Economy Insights, that alone justifies purchasing Amazon stock.

So far, the Web Services segment is the company’s main growth driver. In 2021, the cloud arm brought in $62 billion, 13.2% of the company’s global revenue. However, in terms of operating income, AWS was responsible for 74.5% of the whole Amazon pie.

The Seeking Alpha author argued that those impressive results remain “buried under inflationary pressure and supply chain challenges on the retail side.” If this statement is true, the market could be failing to calculate AWS’s fair market value.

Therefore, Amazon shares as a whole could be undervalued.

E-commerce at a Discount

Here's where things get even more interesting. According to The Motley Fool’s Nicholas Rossolillo, purchasing AMZN could mean buying AWS and receiving its e-commerce sister for free.

Rossolillo’s argument lies in the fact that Amazon’s valuation is currently $1.14 trillion. If this whole value corresponded solely to AWS’s enterprise value — a company that generated $22 billion of operating income in the last 12 months and consistently grows every year — AWS would trade for 51 times its trailing 12 month (TTM) operating profit (which looks reasonable, according the author).

“AWS is the workhorse that's driving Amazon's financials, but Wall Street seems hyperfocused on the e-commerce segments that have temporarily fallen into loss-generating territory. If you believe the e-commerce segments' red ink will be temporary, this stock looks mighty cheap,” he wrote.

Wall Street’s Viewpoint

Despite the macroeconomic headwinds, analysts from Wall Street’s top firms are confident Amazon's stock will turn around. Their bullishness is based on the company’s strong e-commerce presence, its solid Prime membership program and, of course, its dominating presence in the cloud computing industry.

“We believe the company’s long-term growth path is attractive across the e-commerce segment, AWS, digital media, advertising, Alexa, robotics, AI, and more,” said Monness Crespi & Hardt analyst Brian White, who holds a $172 price target on the stock, implying a 42% upside potential.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Amazon’s (AMZN) first Prime Day event of 2022 took place in July and registered a new sales record. This led analysts to hope that, despite macroeconomic headwinds, the e-commerce juggernaut had not lost (all of) its mojo.

Inspired by the July’s event success, Amazon launched a second Prime sales event on October 11 and 12. It was called the Prime Early Access Sale.

However, it might have turned out to be a double-edged sword.

Amazon's management team was likely confident that a second Prime event would be a foretaste of the upcoming holiday season's sales.

Still, the Prime Early Access Sale didn't meet expectations, making some analysts bearish (or at least "less bullish") on the company.

(Read more from Wall Street Memes: AMZN: One Reason to Buy and One Reason to Sell)

October Didn't Meet July's Numbers

Amazon has reported little to no information about the Prime Early Access event's sales figures or its generated profit. However, the company did disclose that “tens of millions of Prime members ordered more than 100 million items from third-party vendors.”

According to Bank of America’s Justin Post, sales “were likely down from July.” His firm estimated that the Prime Early Access Sale generated $5.7 billion, while revenues from the July event reached $7.5 billion.

And BoA is not alone. CNBC also reported that data company Klover noted a drop in both consumer spending and volume, stating that the transaction frequency was down 30% between the July and October events.

CNBC also reported data from Numerator comparing the average spend per order for both events: $46.68 in October against $60.29 in July.

Are Big Sales a Warning Sign?

Despite the extra income that sales events add to Amazon's top line, thanks to slashed prices, not much of the added net revenue can be converted into operating income.

Because of that, Cavenagh Research believes big sales events are nothing but a “warning sign.”

“I don't like the implications of a sales promotion. I think it is a desperate move to meet market revenue expectations,” an article Cavenagh contributed to Seeking Alpha stated.

The author also highlighted how the e-commerce titan has been struggling to maintain its net sales throughout the last quarters amid an increase in operating expenses and the depletion of its profit margins.

The Benefit of the Prime Early Access Sale

However, there is a bright side. According to Juozas Kaziukenas, founder of research firm Marketplace Pulse, Amazon still made more sales during the Prime Early Access Sale than it would have by not launching the event.

“I think it did fine for what Amazon was trying to do, which was to reduce the amount of products they have in their warehouses,” Kaziukenas said. He wrote that discount events have a relatively low cost to produce and have an important boosting effect on sales.

And Kaziukenas is not alone in his bullishness.

BoA's Justin Post also had a positive thing to say about the "second Prime Day" event: "Ultimately, we view this Early Access event as incrementally beneficial, as both a branding event for Prime and potentially smoothing holiday demand aiding with logistics."

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Amazon  (AMZN) - Get Free Report is the very best example of a roller-coaster stock. Shares skyrocketed in 2020, when the company leveraged its titanic size to absorb the vacuum left by brick-and-mortar stores shuttered by COVID.

However, its titanic size comes at a titanic cost. In 2021, Amazon started to show productivity losses. And in 2022, the company presented its first bottom-line miss.

Now Bezos’ juggernaut divides bulls and bears, leaving the question: Is AMZN a buy or a sell? The answer could be both.

(Read more from Wall Street Memes: This Is Why JP Morgan Is Bullish on Amazon Stock)

E-commerce Showing Signs of Fatigue

Amazon’s e-commerce revenue can be broken into online stores, physical stores, third-party sellers, subscription services, and advertising.

The online stores have been showing clear signs of saturation, because they haven’t presented any meaningful growth for the last four quarters.

On the other hand, physical stores and third-party sellers have been growing. Still, they are low-margin businesses that require massive investments with no short-term profitability.

And investing solely for the long run has been quite expensive these days: In both the first and second quarters, Amazon’s operating cash flow decreased 40% on a year-over-year basis.

As a result, the Seattle-based company was forced to close two of its warehouses, as well as abandoning its plans to open 42 new ones. It has also shut down its telehealth service, Amazon Care; closed underperforming brick-and-mortar stores; and frozen its corporate hirings for 2022. Yes, these are frugal times.

Inflation-Proof Growth

As investors watch Amazon’s e-commerce segment tumble, they might believe the company as a whole is a bad investment. However, the Seattle-based behemoth has a peculiarity: Most of its revenues come from e-commerce, but its profits come from its cloud-computing business, Amazon Web Services (AWS).

Because AWS is Amazon’s real profit driver, e-commerce revenue growth is not as nearly as relevant as the cash brought in by the cloud arm. And the good news is that AWS has been growing at least 30% a year, even amid economic recession fears.

Such a high-margin and rapidly growing business becomes hard to ignore. As Amazon remains the leader of the cloud industry, bullish investors believe that the cloud arm will compensate for its e-commerce sister.

The Time Horizon Matters

Both Amazon's e-commerce business and its cloud-computing unit dominate their respective markets. Amazon owns over 40% of the U.S. e-commerce market and a third of the cloud market. Yet the first is struggling to grow and produce any real income, while the second has both.

So which scenario seems more plausible: e-commerce segments draining the profitability brought by AWS or AWS’ vast amounts of cash lifting e-commerce up? I personally believe that answer depends on the timing.

In the short-term, e-commerce really is draining AWS’ profitability and may continue to do so. Still, Amazon's e-commerce issue is external, rather than internal, due to the effects of macroeconomic conditions. It will hardly last forever.

Therefore, it’s safe to say that Amazon still stands out as a promising investment for the long term.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Equity markets have struggled in 2022. YTD, the S&P 500  (SPY) - Get Free Report index has lost over 24% of its value, while the tech-heavy Nasdaq Composite has dropped almost 33%. Amazon  (AMZN) - Get Free Report performed in line with the tech index, having also fallen 33% since the year began.

The current bearish cycle has been driven by persistent inflation, which has delivered a one-two punch to stocks. Inflation has increased companies’ operating costs, but it has also prompted the Federal Reserve to rapidly raise interest rates - which has in turn made the overall equities market much less appealing.

In a rising rates environment, investors should seek companies that are able to (1) continue to grow amid the crisis or (2) hedge their losses and survive the storm. Analysts at JP Morgan believe Amazon has been doing both.

Read more from Amazon Maven: Amazon Stock: Should You Buy It in October 2022?

Revenue Expansion

JPM recently reiterated that Amazon remains their top internet stock pick. The investment bank claims that the e-commerce juggernaut is still capable of delivering top-line growth, via both retail and AWS.

“AMZN remains our favorite name by a wide margin. And while it may be a top pick of many and feel somewhat owned, we believe there is also growing caution across both Retail and AWS in our discussions,” the investment firm stated in a client note.

There’s good reason to be cautious about Amazon’s retail segment. Indeed, Amazon’s online store has not presented significant growth for four consecutive quarters now.

However, the cloud arm remains AMZN’s real profit driver, and it has not disappointed: AWS has grown an astounding 30% every quarter for the past four quarters.

Another revenue driver worth mentioning is Amazon’s Prime membership. JP Morgan’s Doug Anmuth believes this membership program is worth nearly eight times its charged price, which leads the analyst to believe the company has significant pricing power.

In other words, if need be, Amazon could raise its Prime membership cost by a few extra dollars. If it did, it would see almost no dropoff in membership numbers, and the extra revenues would flow cleanly to its bottom line.

"We did another Prime deep dive, and we estimate unbundling all of Prime’s components reveals a package worth ~$1,100/year, ~8x the actual $139 annual Prime cost in the US, +10% from our estimated ~$1,000 value in 2020 & double our ~$544 estimated value in 2016," said Mr. Anmuth.

Trimming Losses

So far Amazon has been doing what it can to cut down on expenses. The company has announced it will freeze corporate hirings until the end of 2022, which should help it slow its spending.

Before that, Amazon’s CFO, Brian Olsavsky, stated during the company’s Q2 earnings conference that Amazon had made “solid progress in reducing these [incremental] costs.” In line with their expectations, the company was able to save an extra $4 billion in expenses.

The “good” news is that cost challenges are largely related to inflated shipping rates, which have affected not just Amazon but the whole retail ecosystem. JP Morgan’s bullishness is rooted in the idea that the e-commerce behemoth can last longer than the competition in such a tough environment, as the company is “better hedged than … others, with product costs in the local currency and AWS Revenue mostly in USD.”

Increasing Cash Flows

JPM is sticking with its “Best Idea” status for Amazon stock. The firm sees Amazon’s revenues as being poised to increase, but, also positively, projects moderating capex and increasing margins.

According to Mr. Anmuth, the combination of expanding revenues and loss trimming should result in a “significant FCF [free cash flow] inflection in 2023.” Consequently, the retail-tech behemoth’s free cash flow could reach nearly $28 billion by the end of the next year - that would put it back at pre-Covid levels.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Amazon  (AMZN) - Get Free Report shareholders have been through an emotional roller coaster this year. In the early months of 2022, Wall Street analysts were confident the stock would regain its winning streak. That led many of them to select AMZN as their top pick for the year.

However, Amazon has been unable to overcome the selloff in the equities market, despite even a 20-for-1 stock split and positive second-quarter earnings. Year to date, AMZN is down nearly 30%.

But although Amazon shareholders may feel discouraged about the stock's performance in the last couple of years, holding onto the stock could still prove to be profitable in the long run.

(Read more from Amazon Maven: Is Amazon Stock a Buy? Here’s What One Expert Has to Say)

Why Is Amazon's Share Price Falling?

Let's start by addressing why Amazon's share price is dropping in the first place.

First, there is the whole macroeconomic problem, which is completely out of Amazon's control.

After the Federal Reserve announced another 75-basis-point interest rate hike in an attempt to quell rampant inflation, the equities market took a nose dive. Giant growth stocks like AMZN saw even bigger losses.

Plus, supply-chain constraints and rising transportation costs have trimmed the profitability of Amazon's e-commerce business and depleted its cash flows. In the second quarter (Q2) of 2022, operating cash flow fell to $35.6 billion — a 40% drop year over year.

Second, there is the micro perspective.

Amazon has been facing cost pressures — mostly from its fulfillment network infrastructure — and productivity losses from overstaffing. This recently led the company to freeze recruitment for corporate roles in its retail business until the end of the year.

How Does AMZN Look for the Long Term?

As opposed to this short-term view, the long-term horizon looks positive.

Amazon remains the market leader in two rapidly growing fields: e-commerce and cloud computing.

U.S. e-commerce is forecasted to nearly double in size from 2021 to 2025, hitting the $1.3 trillion mark. Because Amazon holds around 40-50% of the market, investors can expect growth not only in its online shopping platform, but also in its advertising arm — which has been presenting solid growth rates for the past few quarters.

The outlook for the cloud computing industry is even better: This market is poised to surpass $1 trillion by 2028, growing at a 15.8% compound annual growth rate (CAGR).

Because the Seattle-based behemoth holds a third of the market share here, investors can expect Amazon to add a significant portion of cloud revenue growth to its coffers.

Is Amazon an Undervalued Company?

In the end, what matters most is the price investors are paying.

In this light, Motley Fool contributor Keithen Drury has provided an interesting insight on why Amazon's stock might be undervalued.

Thinking hypothetically, Drury wrote that the company is split into three different enterprises:

1. e-commerce
2. advertising
3. Amazon Web Services (AWS), its cloud-computing unit

By adapting and applying the sales multiples of comparable companies to these three parts of Amazon, Drury concluded that Bezos’ behemoth is worth $1.5 trillion.

Dividing that figure by the number of shares outstanding would result in a price target for AMZN of $147 per share. That would be a 22% upside.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

The Motley Fool’s Will Ebiefung recently published his bullish take on Amazon stock. The expert acknowledges the company’s struggles amid both external and internal post-pandemic headwinds. Still, Mr. Ebiefung believes the e-commerce behemoth is poised for long-term growth.

The author’s perspective meshes well with the Amazon Maven’s long-term thesis for Amazon. However, though we might agree on the what, we do have somewhat different views on the how. Here’s a quick comparison of our theses.

(Read more from Amazon Maven: Should Amazon (AMZN) Investors Be Worried About FedEx's Warning?)

Solid growth drivers beyond e-commerce

This is where we find the most common ground with Ebiefung. Despite AMZN’s bottom line losses in the last two quarters, Amazon bulls argue that Bezos has paved the way to long-term success by carefully developing a full-fledged Amazon ecosystem.

AWS has boasted double-digit growth since at least 2017 and has 30% operating margins. The company’s cloud arm has been at the center of many Amazon bulls’ theses; its profitability has been able to compensate for losses across the company’s other segments, including e-commerce.

Meanwhile, Prime membership continues to deliver outsized benefits to consumers: According to JP Morgan’s Doug Anmuth, the package of benefits delivered by Amazon Prime Is worth roughly eight times the $139 annual cost. On a related note, Amazon’s rapid expansion into media production, coupled with its massive resource base, could allow it to crush streaming competition - such as Netflix - in the long run.

Let’s also not forget Amazon’s ad business, which has been delivering outstanding revenue growth. In fact, Amazon’s ad revenue just recently surpassed YouTube’s.

How E-commerce Will Perform

The major difference between Ebiefung’s and the Amazon Maven’s perspectives comes down to Amazon’s e-commerce future. Amazon has suffered from macroeconomic pressures - including disrupted supply chains and increased costs - since the beginning of the pandemic.

Mr. Ebiefung believes Amazon’s plans to explore new markets, such as Africa and Latin America, could help the company compensate for its top-line deceleration. The Amazon Maven is not as optimistic though. And the reason is the e-commerce industry’s very nature.

Since profit margins per product sold are highly constricted, online retailing requires buying and selling at scale. But establishing and growing the required infrastructure across new continents would be highly costly.

We don’t see long-term returns matching others’ rosy expectations. Latin America’s e-commerce industry was worth $85 billion in 2020. Africa’s was only half of that; it’s projected to reach $43 billion by the end of 2022. By comparison, US e-commerce was worth $768 billion in 2021 and is projected to reach $1.3 trillion by 2025.

Emerging markets, then, seem like the proverbial drop in the bucket. We don’t see a solid return on investment for Amazon’s efforts there.

AWS, Not E-commerce, Is Key

Expanding into new, potentially expensive markets is not the answer to Amazon’s top-line growth problems. We see such moves leading to fruitless infrastructure investments.

Any revenue growth would come at the expense of depleting Amazon’s cash flows. This makes sense when the objective is to make expansions within the larger, more profitable US online retail market. But it doesn’t seem reasonable when it comes to Latin America’s or Africa’s much smaller e-commerce industries.

Amazon already has some modest operations in Latin America and in Africa. But much profitability have we seen from Amazon’s International Segment? Not much.

On the other hand, Amazon has plenty of other growth drivers, with AWS being the flagship segment, as it were. Mr. Ebiefung himself points out that AWS added new big-ticket clients recently, including Delta Air Lines, Riot Games, and Jeffries Investment Bank. As a result of new client acquisitions, AMZN’s cloud arm operating income surged 36% in the second quarter. That gain helped to offset losses across the comapny’s e-commerce segments.

In my opinion, the number one reason to invest in Amazon remains AWS’ colossal growth rates. I believe investors should focus primarily on the cloud arm’s growth drivers.

That being said, they should also watch out for large and risky investments made within this space; any hit to Amazon’s “cash cow” could be devastating to the company’s overall profitability.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

On September 16, FedEx  (FDX) - Get Free Report reported preliminary fiscal first-quarter earnings.

The company disclosed that revenue would come in $500 million short of its previous projections for the quarter.

According to FedEx CEO Raj Subramaniam, the company's slowdown is a harbinger of global recession.

The performance of the equities market last week supports Subramaniam’s bearishness. The S&P 500 was down 2.7% from September 9 to September 16, while the tech-heavy Nasdaq Composite dropped 5.5% and Amazon  (AMZN) - Get Free Report plunged 7.3%.

AMZN shareholders might be concerned about what the FedEx report may mean for the e-commerce titan.

However, we don't think they have anything to worry about. Here's why.

Is Amazon the Real Threat to FedEx?

After FedEx warned investors of a $500 million revenue loss, shares of the company dropped nearly 22%.

When asked if the downbeat forecast could be a sign of an imminent recession, CEO Subramaniam said, "I think so. These numbers, they don't portend very well."

According to CNN Business, global economic headwinds have affected FedEx’s business, especially in Asia and Europe.

Because shipping and logistics companies are often considered an indicator of economic health, FedEx’s revenue slowdown could be interpreted as bad mojo.

But there is another theory — a not-so-gloomy one — that explains why FedEx is losing revenue. The answer is not related to any macroeconomic condition (at least not entirely), but to competition: Amazon is taking market share away from FedEx.

Amazon's Delivery Services Eclipse FedEx

As the Amazon Maven has previously written, Amazon has doubled the size of its fulfillment network since 2019, surpassing 930 facilities in the U.S. alone. Roughly 100 of these fulfillment centers, sort centers, and last-mile delivery stations were opened as recently as September 2020.

Although Amazon’s massive infrastructure investments have depleted its cash flows, the Seattle-based behemoth has been also enjoying their results.

According to Business Insider, Amazon surpassed FedEx in terms of number of packages delivered in 2020 — 4.2 billion against 3.3 billion. As a result, JPMorgan’s Jack Atherton claimed FedEx’s revenue miss could not have been solely caused by an economic recession.

"Amazon launched free shipping software for sellers, and discounted shipping rates," Atherton wrote in a note to clients. "Amazon has piled money into its logistics capability over the past few years, to the point it has excess capacity for its own needs and is hungry for more share which is being targeted through FBA (Fulfillment By Amazon) and could be weighing on FedEx."

Is It Time to Buy Amazon?

Amazon's stock soared after the company disclosed its second-quarter earnings results, hitting $144 per share on August 16 — its highest price since April. However, the stock has been on a freefall this month, dropping to $113.

That may give you a great opportunity to buy this stock.

According to Truist Financial’s Youssef Squali, despite the challenging macro scenario, Amazon has been doing pretty well, especially considering AWS’ profitability, Prime membership’s ability to retain customers, and the growing ad business.

“We believe that the quarter is trending to the higher-end of expectations in the US, reflecting sustained demand driven by AMZN’s superior value proposition in this challenging environment,” Squali recently noted. The analyst has given the stock a price target of $180, implying a 58% upside.

Land a Top Equity Research Job with Peak Frameworks

Equity research is a great career path that combines deep industry analysis and financial modeling, while exposing you to the strategic frameworks of many different types of investors in the stock market.

Many students have used the Peak Frameworks Equity Research course to break into the industry out of school, or to transition into the field from a non-finance career path. The lead instructor has experience working at Goldman Sachs and J.P. Morgan and was involved in the recruiting process at both banks, so you’ll get a comprehensive view of the skills you need to get and prepare for an interview.

To learn more, click on this link and use the code APPLEMAVEN10 for 10% off the course.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

The Dean of Valuation, Aswath Damodaran, states that a good company always has a narrative behind its business model. Dr. Damodaran describes Amazon as a “disruption platform, [that] target[s] any large business where the status quo is inefficient.”

Amazon’s secret sauce for entering and disrupting inefficient markets is composed of three key ingredients: endless amounts of cash (mostly provided by AWS’ hefty profits), massive economies of scale (which makes any disruption easier to distribute), and the capability to analyze large sets of data.

If we assume the company will retain these three key “ingredients” as the central pillar of its business, here are three sectors that Amazon may try to disrupt in the future.

(Read more from the Amazon Maven: Amazon Stock: Should You Buy It in September 2022?)

1. Electric Vehicles and Transportation

If Apple can compete with Tesla, why wouldn’t Amazon try to too?

Yes, it is unlikely the e-commerce behemoth would run a hypothetical automotive venture under its main brand since the company currently owns nearly 18% of Rivian’s equity. However, controlling such a significant stake in the electric automaker allows Amazon to access the expertise needed to enhance its offensive on the electric mobility industry.

How serious is Rivian, anyway? Rivian may not seem a threatening player today, especially considering that the giant traditional automakers are slowly moving to electric vehicles. However, a CNBC report argues that an Amazon-Rivian partnership might change the state of the playing field.

“When Amazon invested in them [Rivian], but more importantly, put a commitment to buy all of those vehicles from them, they changed the market dynamic around that company,” said Mike Ramsey, an auto and smart mobility analyst at Gartner.

For the record, if Amazon ever enters the electric vehicle space, I, personally, would not bet on Amazon venturing into the passenger vehicle industry right away. Amazon would probably be more interested in electric trucks (such as the ones Rivian is set to deliver by 2024). The electric-powered transportation space is less competitive. Gaining a foothold here would also help Amazon partially offset its own logistics costs.

2. Education

There are three main factors that led to my thinking that Amazon may move into the education industry:

1. Amazon has become a data-driven company. Technology has changed so much about society, but our teaching methods are essentially the same as those used a century ago. Amazon could disrupt the education industry by creating data-backed algorithms that are optimized for each student’s individualized pace of learning.
2. Amazon has distribution channels. Companies that wish to disrupt education using data often face hurdles in escalating the scale of their services. Since Amazon has strong distribution channels, it could be easier for the company to overcome this obstacle.
3. Amazon needs it. The Amazon Maven previously discussed how the Seattle-based behemoth needs to hire new professionals every year in order to stay growing. By educating its own tech professionals, for example, Amazon could reduce its headhunting costs. Plus, if students knew that studying at Amazon’s schools would help them land a lucrative job at AWS, they’d have extra incentive to enroll.

3. Social Media

Does it seem impossible that Amazon would try to compete with Meta and ByteDance? Well, not only is it possible, but the company has already tried: Amazon launched its own social media platform, called Spark, in 2017. It allowed Prime members to post pictures of products they bought, but the service was terminated in 2019.

But Amazon still possesses a successful social platform: the live streaming website Twitch, which had 140 million monthly active users in 2022. Since Bezos’ behemoth is aiming to also become an advertising titan, the company could enhance its investments in the sector in order to gain a greater market share in the advertising industry.

Explore More Data And Graphs

Many of the graphs used by the Amazon Maven are provided by Stock Rover. We have been impressed with the breadth and depth of information on markets, stocks and ETFs that this platform provides. Stock Rover also helps to set up detailed filters, track custom portfolios and measure their performance relative to a number of benchmarks.

To learn more, check out stockrover.com and get started for as low as $7.99 a month. The premium plus plan that we have will give you access to all the information that goes into our analysis and much more.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Like practically all investors, Amazon  (AMZN) - Get Free Report shareholders have experienced the market’s violent ups and downs in recent years. The e-commerce behemoth's stock skyrocketed in 2020, stayed flat in 2021 (tanking both the S&P 500 and the tech-heavy Nasdaq Composite), and plunged in the first half of 2022.

But there's good news: Amazon's stock does seem promising right now. The market is hopeful the company will announce double-digit growth in its third-quarter earnings report.

However, as the past two years have taught us, holding AMZN isn't always a peaceful ride into the sunset. It's more like a roller coaster.

(Read more from the Amazon Maven: Amazon's Acquisition Spree: 3 Sectors the Company Could be Aiming For)

Amazon's Most Recent Quarter

In the second quarter, Amazon delivered surprisingly positive results. The company beat the market’s revenue expectations for the quarter by $2 billion, reaching $121 billion in sales.

Back then, Amazon Web Services (AWS) was the star of the show. The cloud-computing business generated nearly $20 billion in revenue, of which $5.7 billion was operating profit.

The AWS segment appears to be headwind-proof, as it’s been keeping its double-digit growth record intact even throughout 2022. AWS grew 37% and 33% in the first and second quarters, respectively.

On the other hand, e-commerce is a mystery. The macroeconomic scenario has made the market bearish about the future of online retail.

But some opinions might have changed after Amazon reported record sales during its Prime Day and that its North America segment had produced 10% growth.

Could the e-commerce industry be accelerating again?

Plans for the Long-Term

I believe Amazon is the kind of stock that suits investors looking for a long-term commitment, rather than a quick relationship. The company has been depleting its free cash flow in order to make sizable acquisitions.

Within less than a month, Amazon announced it will add to its portfolio both One Medical (ONEM) - Get Free Report and iRobot (IRBT) - Get Free Report. Amazon expects to spend $5.6 billion on both deals.

Amazon's cash-flow sacrifice indicates that management has a long-term vision for the company. Once the company leaders are able to deliver on their visions (e.g., enhancing Amazon’s presence in the healthcare industry), Amazon's shares could start soaring soon.

What Are the Risks of Investing in Amazon?

We must acknowledge that Amazon's stock — like the entire equity market — is a risky investment. It's important to understand that macroeconomic headwinds such as inflation, supply-chain constraints, and oil-supply shortages might not die down until the end of 2022.

That said, AMZN appears poised to thrive once these dark days are over.

In fact, Wall Street is considerably bullish on the stock. Of the 31 experts covering it on TipRanks, 30 have a "buy" recommendation. (The one left rates it as a “hold.”) And Amazon’s average price target is $175, implying 36% upside.

Explore More Data And Graphs

Many of the graphs used by the Amazon Maven are provided by Stock Rover. We have been impressed with the breadth and depth of information on markets, stocks and ETFs that this platform provides. Stock Rover also helps to set up detailed filters, track custom portfolios and measure their performance relative to a number of benchmarks.

To learn more, check out stockrover.com and get started for as low as $7.99 a month. The premium plus plan that we have will give you access to all the information that goes into our analysis and much more.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Soon after announcing that it will purchase primary care company One Medical   (ONEM) - Get Free Report, Amazon  (AMZN) - Get Free Report reported that it is shutting down its Amazon Care business.

As a $3.9 billion all-cash transaction, the One Medical purchase will be Amazon's third largest acquisition, behind only the deals to buy grocery chain Whole Foods and Hollywood studio MGM.

If Amazon is serious enough about healthcare to spend that much money on a single company, shouldn't investors have expected further investments into Amazon Care, instead of its being shut down?

Actually, the answer is no.

One Medical is an Amazon Care competitor. Now that the e-commerce titan is paying for its business, there's no longer any need to keep investing in its in-house healthcare unit.

(Read more from the Amazon Maven: Amazon's Acquisition Spree: 3 Sectors the Company Could be Aiming For)

Why Did Amazon Shut Down Amazon Care?

The truth is, Amazon Care was hardly poised to achieve any real success. The Seattle-based behemoth tried to gain scale by offering its health services to its own employees and to gain market share via its Haven partnership with JPMorgan Chase and Berkshire Hathaway.

And even then, the service struggled to create a solid clientele.

On the other hand, One Medical already has an established customer base. The company owns 188 clinics and has 767,000 members.

Compared to Amazon Care, One Medical has more expertise, a better customer base, and a broader pool of services to offer. Therefore, it makes sense that Amazon has decided to limit its healthcare focus — and money — to the company.

“Although our enrolled members have loved many aspects of Amazon Care, it is not a complete-enough offering for the large enterprise customers we have been targeting and wasn’t going to work long-term,” said Neil Lindsay, senior vice president of Amazon Health Services.

Healthcare Is a Difficult Market, Even for Amazon

Even a cash-generating juggernaut like Amazon might find it difficult to dominate the healthcare sector — or at least that’s what Yahoo Finance senior reporter Alexandra Garfinkle argued.

For one thing, Amazon is not the first Big Tech player that has tried to disrupt the health sector.

For another, the healthcare industry is highly regulated and competitive. Consolidating a $4 billion industry would be rather challenging — although not impossible.

“At the end of the day, consumers will opt for affordable healthcare with good doctors who are available to resolve issues when needed. The benefit of an Amazon-owned healthcare system, however, is having a tech-first mindset, with a bias to scale, in delivering health care," stated Arjun Kapur, managing director of VC firm Forecast Labs.

New Acquisitions Ahead?

If Garfinkle is right about Amazon having a hard time consolidating the healthcare industry, the company's acquisition spree might continue. Amazon may target more healthcare companies that share synergies with One Medical's primary care business.

In fact, according to Business Insider, the next potential target for Amazon might be prescription app Express Scripts, which would enhance its pharmacy business.

The main obstacle to such an acquisition would be the regulatory authorities and how they perceive Amazon's attempt to disrupt another industry.

Explore More Data And Graphs

Many of the graphs used by the Amazon Maven are provided by Stock Rover. We have been impressed with the breadth and depth of information on markets, stocks and ETFs that this platform provides. Stock Rover also helps to set up detailed filters, track custom portfolios and measure their performance relative to a number of benchmarks.

To learn more, check out stockrover.com and get started for as low as $7.99 a month. The premium plus plan that we have will give you access to all the information that goes into our analysis and much more.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

We've reached the next stage of the streaming battle: sports.

For the next 11 years, Amazon  (AMZN) - Get Free Report will pay $1 billion annually for the right to stream the NFL's Thursday Night Football exclusively on Prime Video.

And Apple  (AAPL) - Get Free Report has paid $2.5 billion for a similar contract with Major League Soccer (MLS).

According to Laura Martin, senior media and internet analyst at Needham and Co., the tech giants leave no chance for their competitors, such as Netflix  (NFLX) - Get Free Report, because they have “virtually unlimited resources.”

As the group of Netflix bulls grows smaller every day, should they turn their eyes to AMZN and APPL?

(Read more from the Amazon Maven: Amazon's Acquisition Spree: 3 Sectors the Company Could be Aiming For)

Destroying the Streaming Business

According to Martin, Amazon and Apple are destroying the streaming business. The analyst acknowledged that these two titans’ streaming segments are focused on obtaining and retaining customers in their ecosystems, rather than collecting subscription fees.

"They can actually destroy the streaming business because they have other businesses that will actually make up profit or higher profit,” said the analyst on Yahoo Finance Live. “Often they do these rights deals to drive iPhone sales or to drive prime sign-ups because that has doubled the average e-commerce sales.”

Martin is a true Amazon bull, and she believes the stock is undervalued. The analyst priced AMZN at $175 after its second-quarter earnings report. Needham values AMZN's media assets at $514 billion and web services (AWS) business at $663 billion, which implies investors are “paying about $50B (0.2x) for $252B of 2022 Amazon’s e-commerce revenues.”

It’s All About the Ecosystem

If profiting is not a first priority, how would Amazon benefit from winning the streaming wars? The answer lies in one magical word: ecosystem. Amazon wants to bring as many customers as it can into its ecosystem and then generate additional revenue through its other streams.

And it doesn’t even need to be through e-commerce itself. According to the New York Times, Amazon’s streaming rivals such as HBO Max and Starz pay the e-commerce titan at least 15% of each subscription sold through Prime, which is estimated to generate over $3 billion a year.

Research firm Consumer Intelligence Research Partners (CIRP) estimated that, in June 2022, Amazon had 172 million Prime members in the U.S. alone.

And the most interesting part is how loyal they are. According to CIRP, 88% of consumers started their shopping journey on Amazon for their last purchase (not on Google or any other competitor’s website). It's not a coincidence Amazon’s advertising business has already surpassed YouTube’s revenue.

Our Take

Amazon’s capability of making Prime Video only an accessory for its true revenue streams is a blessing the competition doesn't have.

Why? Well, because filmmaking is a beating-the-odds business. Streaming services must hope that a large pool of viewers will have nothing better to do but to stick to each season finale of their shows.

Is there a way to know which shows will be a success before they are even produced? Well, that’s one use data analysis has. Netflix, for instance, is famous for tracking the viewership of each of its shows in order to decide which will receive another season and which will be canceled.

Still, many of Netflix's shows do not make it to a second season. Yes, heavy algorithms might bring some illusion of control, but in the end, film producing is still a gamble, and the gamblers who last the longest are usually those with the most stuffed pockets.

Explore More Data And Graphs

Many of the graphs used by the Amazon Maven are provided by Stock Rover. We have been impressed with the breadth and depth of information on markets, stocks and ETFs that this platform provides. Stock Rover also helps to set up detailed filters, track custom portfolios and measure their performance relative to a number of benchmarks.

To learn more, check out stockrover.com and get started for as low as $7.99 a month. The premium plus plan that we have will give you access to all the information that goes into our analysis and much more.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Financial research firm Morningstar is bullish on Amazon's  (AMZN) - Get Free Report stock. According to analyst Dan Romanoff, the e-commerce titan's strength is in its wide economic moat. This helps the company offer a great variety of goods and services for affordable prices.

However, Romanoff recently warned about the risks that could threaten the Seattle-based titan's market position.

(Read more from the Amazon Maven: Amazon's Acquisition Spree: 3 Sectors the Company Could be Aiming For)

Too Big to Fail

According to Romanoff, Amazon’s e-commerce competitive advantage is its size and scale. The company can offer the vastest product catalog possible for the most affordable prices.

The result is a market share gain projection in a highly growing market — according to Statista, the U.S. e-commerce space will nearly double in size from 2021 to 2025.

As a result, Amazon created an economic moat based on “network effects, cost advantages, intangible assets, and switching costs,” said Romanoff.

Add to that Amazon’s own logistics network, multiple benefits to Prime membership, and the Amazon Web Services (AWS) revenue stream, and we are left with a “powerful virtuous circle in which customers and sellers attract one another” — something traditional retailers have been unable to compete with.

“COVID-19 has accelerated change, and given the company’s technological prowess, massive scale, and relationship with consumers, we think Amazon has widened its lead. We believe this will result in economic returns well in excess of its cost of capital for years to come,” Romanoff wrote.

The Higher the Reward, the Higher the Risk

Despite Morningstar’s bullishness, the firm’s Uncertainty Rating for Amazon is high.

Romanoff wrote that he believes the company’s leadership position in the retail segment is challenging to maintain. That's due to many factors beyond Amazon’s control, such as consumer preferences and the further penetration of traditional retailers in the e-commerce space.

Still, the analyst acknowledged that the intrinsic fragility of the e-commerce market is what pushed Amazon into investing in “nontraditional areas” in order to both secure its dominance and create new revenue streams.

“Some of these investment areas have raised investor questions in the past, but we expect management to continue to invest according to its strategy, despite periodic margin pressure from increased spending,” Romanoff concluded.

Bulls vs. Bears

Amazon is the kind of company that pushes its limits in order to maximize its growth. That is the opposite of a “safe” investment, which catches the eyes of both bulls and bears.

The bulls believe Amazon will remain the leader of the e-commerce and cloud industries, as the cash-cow AWS and the high-growing advertising segment will guarantee the company’s margins, while Prime memberships enhance customer experience.

The bears can hardly deny Amazon’s strengths, but they are skeptical of the costs. Creating and maintaining a fulfillment network, investing in new projects, and acquiring new companies — such as the recent plans to buy One Medical  (ONEM) - Get Free Report and iRobot  (IRBT) - Get Free Report — are indeed depleting the company’s free cash flow.

Also, regulatory issues are still a matter of concern.

In the end, Romanoff sides with the bulls. The analyst gave Amazon's stock Morningstar’s Top Pick status, pricing shares at $192 apiece.

Explore More Data And Graphs

Many of the graphs used by the Apple Maven are provided by Stock Rover. We have been impressed with the breadth and depth of information on markets, stocks and ETFs that this platform provides. Stock Rover also helps to set up detailed filters, track custom portfolios and measure their performance relative to a number of benchmarks.

To learn more, check out stockrover.com and get started for as low as $7.99 a month. The premium plus plan that we have will give you access to all the information that goes into our analysis and much more.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Amazon’s  (AMZN) - Get Free Report M&A team has never been so busy. The company recently announced the acquisition of two new companies: One Medical  (ONEM) - Get Free Report and iRobot  (IRBT) - Get Free Report.

The recent deals reveal that Amazon’s strategy for growth is purchasing and leveraging companies that:

1. Share synergies with its a business model; and
2. Possess a know-how regarding their products that would be too expensive for Amazon to develop in-house.

Considering that the Seattle-based behemoth’s shopping spree will go on, here are three sectors that I believe could be Amazon’s next targets.

(Read more from the Amazon Maven: Amazon’s iRobot Acquisition: What Wall Street Is Saying)

1. Cybersecurity

In times when every gadget is connected on the internet, data privacy is key.

Apple  (AAPL) - Get Free Report has a strong appeal in this department. The Cuppertino-based titan is known for its secure software.

Does that influence customers to stay in Apple's ecosystem? The answer is most likely yes.

If there were frequent breaches in its data-security system, Apple’s customers would probably slowly flow to the competition.

Since Amazon is integrating its gadgets with internet-based services, having its customer base feel safe is crucial.

Because developing cybersecurity software requires experience, Amazon could acquire a company to leverage its know-how.

Also, a new cybersecurity arm could become an important revenue stream for the e-commerce giant. The industry, worth $86 billion in 2022, is projected to hit $298 billion in 2027, expanding at a compound annual growth rate (CAGR) of 13.3%.

2. Video Games

The gaming industry enjoyed a boost during the COVID pandemic and overcame the movie and the North American sports industries combined.

According to PWC, the global video game market was worth $214 billion in 2021 and is poised to grow at a 8.4% CAGR until 2026, reaching $321 billion.

Is this a consolidated market? Yes, but maybe not for long.

As the Amazon Maven has previously discussed, cloud gaming has become the holy grail for the industry. It will allow customers to save money and game publishers to better distribute their products.

“When you talk about Nintendo  (NTDOY) - Get Free Report and Sony  (SONY) - Get Free Report, we have a ton of respect for them, but we see Amazon and Google  (GOOGL) - Get Free Report as the main competitors going forward. I don’t want to be in a fight over format wars with those guys while Amazon and Google are focusing on how to get gaming to 7 billion people around the world. Ultimately, that’s the goal,” said Phil Spencer, Microsoft’s  (MSFT) - Get Free Report head of gaming.

Although Amazon has been fiercely fighting for a piece of this market through its original games New World and Lost Ark, I believe Amazon will give in and acquire a consolidated publisher.

In fact, a few months ago, I placed my bets on Electronic Arts  (EA) - Get Free Report, Capcom, and Square Enix. 

Unofficial report relived the possibility of a Amazon-EA deal on Friday, August 26, leading the video game company’s stock to a small rally. 

Though CNBC reported Amazon will not bid for acquiring the company, there may still plenty of water to go under this bridge.

3. Credit Lending

Finally, we have credit lending — in this case, popularly known as “buy now, pay later.”

In times of inflationary pressure, a small incentive could be necessary for Amazon's e-commerce segment to regain traction.

Even though credit lending and online retail share great synergy, Amazon’s real strength would be taking advantage of its colossal amount of cash and its data analysis segment to both grab a significant share of the market and offer lower interest rates than the competition.

In the end, it could turn out to be a very promising move. According to Grand View Research, the buy-now, pay-later industry was worth $5 billion in 2021 and is projected to expand at a 26% CAGR from 2022 to 2030, reaching $39 billion globally.

Explore More Data And Graphs

Many of the graphs used by the Apple Maven are provided by Stock Rover. We have been impressed with the breadth and depth of information on markets, stocks and ETFs that this platform provides. Stock Rover also helps to set up detailed filters, track custom portfolios and measure their performance relative to a number of benchmarks.

To learn more, check out stockrover.com and get started for as low as $7.99 a month. The premium plus plan that we have will give you access to all the information that goes into our analysis and much more.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Amazon  (AMZN) - Get Free Report has announced a new acquisition: Roomba maker iRobot  (IRBT) - Get Free Report. The vacuum cleaner company has been struggling with supply-chain constraints and decreasing demand, making now the perfect time for Amazon’s move.

The Amazon Maven has given its perspective on the matter: It's a fairly priced acquisition for one of the first Industry 4.0 companies.

Today, we check out Wall Street’s view. What do the world’s best analysts have to say?

(Read more from the Amazon Maven: Why Amazon's E-commerce Ecosystem Is Unbeatable)

Amazon or Bankruptcy?

Telsey Group’s Joseph Feldman has highlighted how iRobot's business has “slowed significantly.” Second-quarter revenue was 30% lower year over year, and the company reported a $38 million loss.

The inflationary scenario could be (at least partially) to blame. As essential purchases such as food, fuel, and rent become more expensive, customers delay buying nonessentials — like autonomous vacuum cleaners — until better economic times.

In this scenario, Amazon’s endless amount of cash plays an important role. The acquisition could keep iRobot from going bankrupt in the face of 2022's headwinds.

“While iRobot needs operational support and looks to be facing supply-chain and other headwinds to earnings in the near term, Amazon is adding a strong brand in consumer robots that already has devices in homes across the world,” Feldman wrote.

There's Only One Threat to the Deal

The Amazon-iRobot acquisition seems like an excellent deal for both companies. However, there is a third party that could threaten the deal: regulators.

According to Needham’s James Ricchiuti, the deal “is likely to get a fair amount of scrutiny from regulators, given the current negative view of Big Tech in Washington and Europe.”

Aside from regulators, the analyst seems to believe there are no risks to the transaction, because (1) iRobot is a “natural extension” of Amazon's flywheel business strategy and (2) it is “unlikely that other suitors will emerge.”

Amazon's Long-Term Strategy

Amazon’s main interest is using iRobot's technology to improve its own robotic innovations in order to become an Industry 4.0 company.

As Telsey Group’s Joseph Feldman wrote, “In our view, Amazon is likely to leverage iRobot’s robotic technology and data platform to innovate and expand new smart-home products, as well as actively sell these smart everyday products to its 200 million-plus global Prime members.”

In this case, Amazon could be aiming to dominate a new high-potential, growing market.

According to Snigdha Parida, senior analyst at analytics company GlobalData, the robotics industry is expected to reach $568 billion by 2030, with the consumer robotics segment reaching $70 billion at a 29% compound annual growth rate (CAGR) between 2020 and 2030.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Amazon  (AMZN) - Get Free Report has been investing heavily in its ecosystem. The company has created multiple streams of revenue not only for profit generation but also for boosting its chain of services.

But because the synergies among its brands can be tough to estimate, analysts may find it challenging to price Amazon's stock.

In fact, by starting with the e-commerce marketplace and expanding to media production, media distribution and advertising, the Seattle-based titan is poised to dominate much bigger shares of the e-commerce industry.

Today, the Amazon Maven discusses these synergies, why we believe they add so much value to Amazon’s e-commerce business, and the missing ingredient that Amazon might be after in order to complete its strategy.

Read more: Amazon Stock: Is This the Only AMZN Bear?

Where People Buy

Amazon has been significantly expanding its brand in an effort to become the first e-commerce marketplace customers think about when they want to shop. To accomplish this, Bezos’ juggernaut has to do three main things:

1. Offer the lowest prices (so people would always check Amazon’s website before acquiring any product from its competitors)
2. Ship and deliver quickly (to compensate for brick-and-mortar's best advantage over e-commerce)
3. Offer absolutely every single product possible

I believe Amazon has achieved the first item successfully. And it has clearly achieved the second: Not only have Amazon’s logistics services surpassed FedEx and UPS, but the company has also been investing heavily in its own physical stores.

The third item is the most interesting one. Amazon is trying to evolve from an “everything" store to a “beyond everything” one. The company wants to offer more than its competitors can, and the only way to do so is by creating its own product lines.

Although Kindle and Alexa are very successful projects, I believe in the future the company will try to offer the largest product catalog it can (and will improve its margins through the verticalization).

What People Buy

To achieve the goal of maximizing sales, Amazon must be more than the first option for customers. The company needs to anticipate their desires.

Herein lies the importance of its multiple platforms, such as Amazon Prime Video, Amazon Music, Twitch, Audible, and its advertising arm.

By understanding customer preferences and likes, Amazon is able to know which products to offer to each customer, even if they have never thought about buying them before.

As most competitors must rely on Google  (GOOGL) - Get Free Report or Facebook  (META) - Get Free Report ads, Amazon’s capability to do it in-house gives the company a valuable edge. In fact, I would not be surprised if Amazon’s next step were acquiring (or even developing) a social media platform.

What People Want to Buy

Amazon has become the main e-commerce platform in the U.S., and its businesses share countless synergies. Therefore, I believe the company’s next step will be creating new product demands — and that’s not restricted to gadgets or gaming.

For instance, Amazon could create its own clothing brand and promote it in an exclusive Prime Video series. Customers could see an actor wearing a jacket they like and then click on the screen to complete the purchase while still watching the show.

Because Amazon (1) has the best characteristics required to build such an ecosystem and (2) has no competitors with similar traits, I believe the company's e-commerce business is poised to revolutionize the industry in the long term.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Amazon’s  (AMZN) - Get Free Report latest earnings conference has ignited the hopes of the company’s bulls. After a disastrous first quarter (Q1), when the Seattle behemoth presented its first bottom-line loss in nearly seven years, Amazon reported revenue growth in Q2.

Although, overall, the market was positively surprised — the stock rallied nearly 10% right after the disclosure, and many analysts revised their price targets for AMZN — there was one analyst who was actually disappointed.

Rosenblatt Securities’ Barton Crockett kept his "hold" recommendation, with a price target of $118. Let's discuss why.

Read also: Amazon Stock: Were Recession Fears Overrated?

Crockett: Amazon Is Far From Perfect

Amazon currently has two main businesses: online retailing and cloud computing services. E-commerce has been the jewel of Amazon’s crown, and it shone the most during the COVID pandemic in 2020. Since then, online retail has slowed.

But the company's cloud computing arm, Amazon Web Services (AWS), has never failed to surprise Wall Street. AWS was able to become Amazon’s main source of income, although generating significantly less revenue than retail.

In 2021, AWS brought the company 13% of its consolidated revenue, but 74% of its operating profit.

As the e-commerce segment faced several headwinds, analysts turned their eyes to AWS, which was registering two-digit growth every quarter.

That was enough to impress most analysts, but not Crockett, who argued Amazon’s Q2 earnings could be showing the company is losing space in the cloud wars.

"Sales in Amazon's cloud segment rose 33%, a deceleration from 37% in 1Q22, and slower than Microsoft  (MSFT) - Get Free Report Azure's 46% constant currency growth and the +40% we estimate for the comparable cloud computing portion of Google's  (GOOGL) - Get Free Report cloud segment," wrote the Rosenblatt analyst.

Crockett Often Goes Against the Herd

It’s not the first time Crockett has gone against the Wall Street herd. The analyst rated the stock as a hold just before this year’s Q1 earnings disclosure, with a price target of $150.

He argued the e-commerce segment would have its margins trimmed by inflation, because the industry’s very nature makes it impossible to roll price increases over to consumers.

Still, at the time, Crockett believed AWS was a promising business and would be enough to compensate for e-commerce’s further losses.

Because Crockett came to be disappointed with the AWS results, investors should watch Microsoft's and Google’s results closely in order to predict whether Amazon is really losing the crown of "Cloud Kingdom."

Wall Street’s Take

Unlike Crockett, who has set a price target of $118 on Amazon, Wall Street has grown more bullish on the stock since the last earnings conference.

In fact, Morgan Stanley’s Brian Nowak stated that Amazon has eased his fears about AWS deceleration, retail sales growth, and profitability, concluding that investors should become more confident in Amazon's 2023 earnings before interest, taxes, depreciation, and amortization (EBITDA).

Bank of America’s Justin Post agreed by restating that Amazon remains BofA’s top 2022 FANG stock:

"Reduced headcount (100k fewer q/q employees), alleviating supply-chain issues, accelerating third-party revenue growth to 13%, AWS strength (growth in-line with our 33% est) were bright spots, with 3P revenue growth beating Street by 5pts (and limiting potential retail gross margin headwinds)," Post wrote.

Bank of America rated AMZN as a buy, with a price target of $170. Morgan Stanley has a slightly higher target: $175, which implies 21% upside.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Inflationary pressures may finally be cooling, if only a bit. According to data disclosed by the Bureau of Labor Statistics, inflation in July rose 8.5% year over year but was flat compared with June - i.e., there was no net inflation over the last month. Expectations were that inflation was going to rise 8.7% YoY and 0.2% MoM.

Investors were given new reason to ponder whether inflation has reached its peak, and the equities market responded positively. On the day of the BLS’s announcement (August 10th), the S&P 500 closed 2.1% higher, the Nasdaq Composite gained 2.9%, and the DJIA climbed 1.6%.

Once the market recovers its appetite for risk, Amazon  (AMZN) - Get Free Report shareholders may want to ask: how will the current macro scenario affect the e-commerce behemoth?

(Read more from the Amazon Maven: Amazon's Stock Split: Has It Affected Share Prices?)

The Sun May Be Starting to Shine, But The Rain Is Not Over

The Consumer Price Index came below economists’ expectations in July, as energy prices and the price of gasoline fell 4.6% and 7.7%, respectively.

“Things are moving in the right direction,” acknowledged Jefferies’ Chief Economist Aneta Markowska. “This is the most encouraging report we’ve had in quite some time.”

Now, it’s possible the Fed might not be forced to adopt aggressively hawkish policies in order to control inflation. Significant and sustained rate hikes by the Fed were one of the market’s biggest worries. The Federal Funds interest rate remains between 2.25% and 2.5% - and though it’s expected to head higher, it may not go as much higher as worse-case prognosticators feared.

“The deceleration in the Consumer Price Index for July is likely a big relief for the Federal Reserve, especially since the Fed insisted that inflation was transitory, which was incorrect. If we continue to see declining inflation prints, the Federal Reserve may start to slow the pace of monetary tightening,” stated Nancy Davis, founder of Quadratic Capital Management.

The market has been more optimistic lately, even before this latest inflation print. The Nasdaq Composite has already gained over 20% in value since hitting its bottom on June 16th. Usually, a market is considered bullish when it recovers 20% or more from its lowest point. However, it’s still not safe to declare the bear market is over yet. The S&P 500 has regained only 14.8% since its low point in June, and even with the lower-than-expected CPI numbers, inflation pressures remain strong.

The Other Side of The Coin

As the expectations of an upcoming recession ease, there’s a new concern on the horizon: the demand for gas. According to CNBC, the International Energy Agency raised its projected global demand for oil, which could mean higher prices in the future.

“Natural gas and electricity prices have soared to new records, incentivizing gas-to-oil switching in some countries,” stated the Paris-based agency in its monthly oil report, in which it raised its outlook for 2022 demand by 380,000 barrels per day.

How Amazon Could Be Affected

Amazon is an international juggernaut, but most of its e-commerce sales are concentrated in North America. High inflation is naturally and inversely related to retail sales. Therefore, signs of price stabilization in the US is a good omen for the Seattle-based company — and its shareholders.

Oil is a different matter. Although the global demand is poised for an increase, there are multiple factors influencing the issue, such as how fast the global economy can recover and how quickly suppliers can keep up. The economic sanctions imposed over Russia’s invasion of Ukraine, and the possibility of a China-Taiwan conflict, remain pertinent.

As Amazon is a notoriously huge logistics company, its operating costs are intensified by rising gas prices. Conversely, costs ease and margins improve if gas prices fall. Therefore, investors should be watching how both inflation and fuel prices behave in order to predict the strength off Amazon’s margins for the second half of 2022. 

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Amazon's  (AMZN) - Get Free Report customers might not be the only ones with a shopping addiction.

Just after announcing its plan to acquire health-care company One Medical  (ONEM) - Get Free Report for roughly $3.9 billion, Amazon reported it is buying iRobot  (IRBT) - Get Free Report, the maker of autonomous vacuums.

Amazon will pay $1.7 billion in cash for the company, making it the e-commerce giant's fourth-largest acquisition so far.

But Amazon’s strategy goes far beyond wanting to sell vacuums. Critics of the deal claim that Amazon intends to use iRobot's algorithms to violate customers' privacy.

Here's what you need to know.

(Read more from the Amazon Maven: Amazon After Q2 Earnings: What the Analysts Are Saying)

A Premium or a Discount?

iRobot was founded by three members of the Massachusetts Institute of Technology's Artificial Intelligence Lab. Its robots were initially designed for military purposes. But in 2002, the company started to apply its technology to vacuum cleaners.

The company's expertise sets it apart from the rest. iRobot is known for having the best environment-scanning algorithms, which can be incorporated into Amazon products such as Astro and Alexa.

As expected, Amazon will pay a premium for the Massachusetts-based company. However, paying a premium doesn't always mean the deal is too expensive.

Amazon will pay $61 per iRobot share, a 22% premium over its $50 trading price before the deal.

Considering that iRobot's all-time high was $133 per share, I believe Amazon is paying a reasonable price, to say the least.

iRobot has been struggling to deliver bottom-line growth, because inflation has cut into its revenue growth and microchip shortages have trimmed its margins. But once these macroeconomic headwinds die down, iRobot should grow again.

Hardware and Software Synergies

The most obvious synergy here is verticalization: Amazon can favor Roomba and other iRobot products over competing robots in order to maximize iRobot’s revenues.

In addition, purchasing iRobot will enhance Amazon’s work in robotic hardware and software. Amazon has already been investing heavily on robotics through products such as Astro, Proteus, Cardinal, and Amazon Robotics Identification.

It appears Amazon is looking to evolve from an online retailer to an Industry 4.0 company, flooding the market with hardware products that can connect to each other through its proprietary software.

If Amazon is successful, it could create a barrier to entry for other manufacturers, because customers will likely prefer to remain in the Amazon ecosystem.

Will the Deal Go Through?

But not everyone agrees the iRobot deal is a good thing.

According to Ron Knox, senior researcher and writer for the Institute for Local Self-Reliance, the acquisition "may be the most dangerous, threatening acquisition in the company's history."

In an Insider interview, Knox acknowledged Amazon is acquiring an established market share. But he said the company will leverage its massive scale to the detriment of competitive fairness.

Also, the researcher believes Amazon could violate customers’ privacy by having access to the information contained in iRobot’s data sets.

As the deal has not yet been approved by the Federal Trade Commission, regulators might still terminate it due to antitrust allegations.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

On June 6, Amazon  (AMZN) - Get Free Report completed a 20-for-1 stock split. Despite not adding any real value to the company, stock splits are known for spiking share prices — as happened with Apple  (AAPL) - Get Free Report and Tesla  (TSLA) - Get Free Report.

However, Amazon's split didn’t have the same effect.

In a recent article, Motley Fool author Keith Speights discussed how much of Amazon's recent rally was assisted by the split. Today, the Amazon Maven gives its take on Speights' perspective: Is the effect of the stock split still to come?

(Read more from the Amazon Maven: Amazon After Q2 Earnings: What the Analysts Are Saying)

How the Split Could Have Sent the Stock Higher

A stock split is nothing more than dividing the number of outstanding shares by a predetermined factor. It's like swapping one $20 bill for 20 $1 bills.

Therefore, there's no real reason why a company's valuation should increase.

However, in Amazon's case, we were led to believe that a split would help the stock gain traction. There are three main reasons for that:

1. Shares become more affordable: As the price got 20 times lower, retail investors could find it easier to purchase whole AMZN shares (instead of buying fractional shares), which would elevate Amazon's stock price.
2. ETF-led demand: The lower stock price could lead to AMZN's inclusion in the Dow Jones industrial average (DJIA) and increase the demand for the stock among exchange-traded funds (ETFs).
3. A $10-billion share buyback: Wells Fargo’s Brian Fitzgerald interpreted Amazon’s increased share repurchase authorization as “further evidence of a sharper focus on profitability.”

The Motley Fool’s Take

According to Speights, demand from retail investors is the key to a successful stock split.

However, the timing for Amazon’s stock split wasn't great. The company's gloomy first-quarter results were still keeping retail investors from buying shares.

But the Motley Fool contributor believes Amazon's stellar second-quarter earnings — which were announced in July — plus the announcement of a new Prime Day sales record and the news of One Medical  (ONEM) - Get Free Report and iRobot  (IRBT) - Get Free Report acquisition plans could be the incentive retail investors needed.

Therefore, Speights thinks that some of Amazon's recent stock rally could still have been driven by the split.

Our Take

Is it likely Amazon's split helped increase demand for its stock?

Yes.

How significantly did it do so?

As Speights highlighted, it's impossible to answer this question.

However, I don’t believe the split played a significant role in Amazon's recent rally.

Traditionally, Amazon shares have responded well whenever the company has made an announcement about its growth. I think the rally has more to do with the company's second-quarter results than with the split.

I believe the Amazon stock split will have more of an impact if the company actually gets included in the DJIA.

However, this process is arbitrary — a committee made up of index representatives and Wall Street Journal editor decides which stocks can join the DJIA. Therefore, investors shouldn’t base their investment thesis solely on this possibility.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Amazon’s  (AMZN) - Get Free Report second-quarter earnings conference delivered better-than-expected results. AMZN soared almost 15% the week after the disclosure, with shares now trading near the $140 mark. The result was a trend-bucker. Apart from Apple, nearly every other big tech name - including Meta, Alphabet, and Microsoft - reported gloomier results for the quarter.

Now, let’s check back in with Wall Street. Were analysts pleased with Amazon’s financial results? How did it affect their previous valuations? And what do they expect for upcoming quarters?

Today, the Amazon Maven brings Wall Street’s perspective on the e-commerce titan’s return to the podium.

(Read more from the Amazon Maven: Amazon's Q2 Earnings: Returning to the Top?)

A Giant Rises Again

Amazon has presented strong revenue this quarter. And even though revenue growth was in the single digits for the second quarter in a row, analysts are confident the Seattle-based behemoth is accelerating again.

In fact, the company’s guidance forecasts third-quarter revenues to range between $125 and $130 billion, representing a healthy 13% to 17% growth YoY.

Despite online stores showing few gains, both Amazon’s physical stores and its third-party sellers’ revenues expanded by 13%. But the real stars this quarter were AWS and Amazon’s advertising services. Their sales gained a respective 33% and 21%, on a yearly basis. In fact, AWS generated less than 16% of Amazon’s consolidated revenue but was responsible for all of its operating income.

Wall Street Speaks

Analysts were thrilled by Amazon’s 2022 financial results, especially given the macroeconomic headwinds the company has been facing. AMZN’s 2Q results came in just ahead of the high end of guidance on both revenue and operating income.

“The company executed well despite inflationary pressures,” wrote JP Morgan’s Doug Anmuth, who also highlighted Prime Video’s content as a bright spot in Amazon’s long-term strategy.

“Notably, Prime Video will launch The Lord of the Rings: The Rings of Power on September 2, and Thursday Night Football will start on September 15,” he wrote. “Suffice to say, Middle Earth, the NFL, and high-profile talent do not come cheap, but we also can’t remember a more anticipated period of content for Prime Video, which should pay dividends in terms of Prime members and retail sales.”

Truist Securities’ Youssef Squali seems to agree. The analyst praised Prime, AWS, and Amazon’s advertising segment’s ability to overcome the current challenging macro environment. “Prime plus sustained growth in AWS and in the ads biz have helped AMZN thrive in the face of a weakening macro, which is all the more impressive considering AMZN control about 41% [of the] U.S. [ecommerce] share,” he wrote.

For Deutsche Bank’s Lee Horowitz, the most astonishing characteristic of Amazon’s results are not its financials per se, but the resilience of its business within its larger industry. “All in, Amazon provided investors with a very clean 2Q earnings, in the midst of extreme macro-related earnings volatility across tech,” the analyst wrote.

Goldman Sachs’ team believes that the third and fourth quarters of 2022 might be Amazon stock’s turning point. “With a successful 2-day Prime Day event in July and management discussing end demand concerns in its core businesses, we see Amazon well positioned to produce a strong revenue growth narrative in the second half of 2022,” wrote GS analyst Eric Sheridan.

The Bull Club Cheers

Amazon investors may finally see their shares outperform the market again. Post-Q2 earnings, several Wall Street analysts raised their target prices on AMZN. JP Morgan reiterated their “buy” rating on AMZN, keeping the stock as their Top Pick and raising their target from $175 to $185.

Truist Securities is also bullish on the stock, keeping their “outperform” rating and elevating their target price from $175 to $180. Deutsche Bank also joined the club - the firm raised its price to $175 from $155. And Goldman Sachs, which set AMZN as their 2022 top pick, agrees with Deutsche’s target, keeping their fair value at $175 per share.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Amazon  (AMZN) - Get Free Report reported better-than-expected results in its second-quarter earnings release. The news for nearly every single aspect of Amazon’s business was almost too good to be true: The e-commerce segments had nearly zero losses, and Amazon Web Services (AWS) remained a safe profit generator.

However, Amazon reported another bottom-line miss. But this time, Rivian’s  (RIVN) - Get Free Report performance was to blame. Amazon's stake in the automaker caused it to lose nearly $6 billion in non-operating income.

In the end, investors seemed pleased. Shares have climbed over 14% since the earnings report. So is August the best time to purchase some AMZN shares?

(Read more from the Amazon Maven: Amazon's Q2 Earnings: Returning to the Top?)

Beating the Expectations

Amazon presented poor results in its first-quarter financial disclosure. But even worse, the Seattle-based company delivered gloomy guidance for its second quarter (Q2), with revenues expected to range between $116 billion and $121 billion. The Wall Street consensus was $119 billion.

Guidance for operating profits was also low, ranging between a $1 billion loss and a $3 billion profit.

Because Amazon hadn’t shown operating losses since 2015, analysts were forced to lower their price targets to better match the current scenario. Wall Street believed the e-commerce juggernaut was closer to an operating loss than to a significant profit.

But Wall Street was in for a pleasant surprise. Amazon's Q2 revenue ($230 million) surpassed expectations, and operating income of $3.3 billion beat the consensus by more than 10%.

Not as "Cheap" as Before

Amazon has never been truly cheap. Even when its stock price dropped amid fears of a possible recession, its multiples could hardly have been considered "significantly low" compared to the competition.

But recent results have raised the bar again.

Amazon's price-to-earnings (P/E) ratio on June 30 was 95. On August 1, its P/E was higher than 120.

Although that’s far below the stock’s record high P/E multiple of 1,078, we could debate whether investors were overhyped about last quarter’s earnings or whether the stock is finally gaining traction again.

It would be wise to wait at least a couple of weeks before adding more AMZN to your portfolio. The ghost of inflation is still haunting the equities market and could mitigate the effects of the stock's recent rally.

However, this is a risky strategy, because nobody can predict where the stock is heading in the short term.

Still a Buy?

The third quarter may be a decisive one for Amazon's stock.

If Amazon beats the market’s expectations for Q3, its stock will most likely skyrocket as investors anticipate Q4 results. After all, Amazon will have two sales boosts in the fourth quarter — the holiday season, plus a second Prime Day event.

Amazon’s guidance for the third quarter predicts revenue ranging between $125 billion and $130 billion (the consensus forecasts revenue of $126.49 billion). And the company expects operating profits to be anywhere from $0 to $3.5 billion.

Returning to Q2, the good news is the e-commerce segments had no significant operating losses. And AWS’s operating income has been higher than $3.5 billion for at least four quarters in a row.

Therefore, Amazon might easily beat its $3.5 billion projected income in Q3, indicating that a turnaround might happen sooner, rather than later.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Amazon  (AMZN) - Get Free Report investors have been riding a roller coaster during the last two years. The stock climbed 74% in 2020. But then it went sideways, growing less than 3% in 2021.

And until the company reported its second-quarter (Q2) earnings for 2022, the stock appeared to be in freefall. It had lost 36% since the start of the year — enough to send it back to pre-pandemic prices.

But after its Q2 earnings beat analyst expectations on Thursday, Amazon shares have surged by more than 10%.

Today, the Amazon Maven gives its take on the e-commerce titan’s earnings release. What was good? What could have been better? And more importantly, what should you expect in the second half of 2022?

(Read more from the Amazon Maven: Amazon Prime Day: Was It Enough to Save the Quarter?)

Cloud Computing and Advertising: Even Better Than the Market Forecast

Amazon's cloud-computing business, Amazon Web Services (AWS), appears to be not only recession-proof, but also capable of surprising analysts. The segment's revenue grew 33%, while operating income increased by 28%. That was nearly enough to save Amazon's bottom lines.

But there was another positive surprise: Amazon's advertising business. The company's expansion into Google's  (GOOGL) - Get Free Report territory grew 18% year over year, in terms of revenue.

Considering the operating margins for Meta's  (META) - Get Free Report and Google's advertising businesses, Amazon could be building an even more powerful revenue stream than its computing unit.

Profit Loss: Not as Bad as the Market Expected

Much of the negative sentiment regarding Amazon's stock comes from uncertainty regarding its business in an inflationary scenario.

Investors were expecting poor growth in the company’s top lines and high operational costs in its bottom lines.

In terms of global revenue for the quarter, analysts were expecting $119 billion in net sales. However, Amazon positively surprised the market by beating expectations — something it hasn't done in a long time — with $121 billion in revenue for the quarter.

And if we strip out the losses from its Rivian (RIVN) investment, we can see that Amazon would have reported a profit.

Now, this isn't to say that the company has overcome its headwinds. But these are good signs.

“Despite continued inflationary pressures in fuel, energy, and transportation costs, we’re making progress on the more controllable costs we referenced last quarter, particularly improving the productivity of our fulfillment network,” Amazon CEO Andy Jassy said, adding that Amazon was also “seeing revenue accelerate.”

The Future: Bullish Perspectives

As the Amazon Maven has outlined before, Amazon stock is well positioned for future growth. However, investors should not expect to see short-term gains.

There are two main reasons why holding Amazon solely for the short term is not a good strategy:

1. Despite AWS (and maybe the advertising business) being Amazon's cash cow, e-commerce still plays a major role in the company's long-term strategy. As the possibility of a recession remains on the table, Amazon's stock still might suffer new losses.
2. Amazon’s recent gains beat expectations because the market was undervaluing its revenues and its margins. However, as analysts review their valuation projections, they'll be less likely to underestimate the company’s revenues again.

The good news is Amazon could be a great long-term stock because the company is poised to lead both the e-commerce and the cloud computing spaces — two rapid-growing industries.

Therefore, after the current macroeconomic headwinds have passed, Amazon's stock could hit the jackpot again.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Earnings season is here, and it’s time to find out whether Amazon  (AMZN) - Get Free Report is returning to profitability, or if it will announce a loss for the second quarter in a row.

Last time, Amazon CFO Brian Olsavsky split the company’s issues into two categories: external and internal. The external problems were caused mostly by macroeconomic issues.

However, if Amazon can fix its internal troubles, the stock could be poised for a rally.

(Read more from the Amazon Maven: Amazon Prime Day: Was It Enough to Save the Quarter?)

External Headwinds: More of What We Know

Amazon’s e-commerce segment enjoyed significant growth during COVID lockdowns only to have it all taken away after restrictions eased. Consumers are returning to brick-and-mortar stores, and that has played a major role in e-commerce's deceleration.

Amazon has been trying to break into the physical retail space, but it's nowhere near making any real profits from it yet.

However, persistent inflation is a bigger issue. When the prices of goods increase, customers become less willing to buy. This can lead to economic deceleration or — in the worst-case scenario — recession.

And we could be in a recession sooner than later.

One important economic thermometer is the demand for semiconductors and microchips. These components are critical to a huge variety of industries.

Chipmaker Micron  (MU) - Get Free Report recently reported worse-than-expected results, hinting that the demand for microchips might be decelerating. That would be bad for everything from small electronics to personal computers and cars.

Internal Issues: Fixed?

Amazon’s internal issues could have already been solved. The company was suffering from a lack of physical space and workers. Now it has too much of both.

Therefore, the first thing on the list is to find out if Amazon has already frozen its hiring processes. The good news is the company discloses its work force updates periodically.

As for the physical space issue, Amazon could be analyzing the possibility of renting out some of its warehouse space, which could bring in additional income for the company and help it avoid extra expenses.

Wall Street: Bullish, but Not as Much

Wall Street remains confident that Amazon stock has still much to deliver. The average price target for AMZN is $172, implying 48% upside. However, it's unlikely we will see the stock meet those targets by the end of 2022, thanks to inflation.

Our take, then, is that Amazon's stock is a long-term winner for investors who can stand the risk. As soon as the market is able to project the stabilization of inflation, investors should become more confident in retail in general — and by that, Amazon stands to benefit. 

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Amazon  (AMZN) - Get Free Report is striking a deal to acquire healthcare provider One Medical  (ONEM) - Get Free Report in a $3.9 billion all-cash transaction. This will be the e-commerce giant's third largest deal, behind the acquisitions of grocery chain Whole Foods and Hollywood studio MGM.

It should not come as a surprise that Amazon is moving into the healthcare industry. The company acquired mail-order pharmacy PillPack Inc. in 2019 for $750 million.

Here's why I believe Amazon’s acquisition and move into healthcare is a positive move for the company and its stock.

(Read more from the Amazon Maven: Amazon Prime Day: Was It Enough to Save the Quarter?)

Why One Medical?

One Medical's business basically consists of both in-person primary care services and around-the clock telehealth appointments. The company operates 182 medical offices in 25 U.S. markets. Consumers access physicians through paid subscriptions.

However, it's far from being a market leader. While One Medical has 767 million members, its biggest rival, Teladoc  (TDOC) - Get Free Report, has nearly 54 million.

News of the deal seemed to better please One Medical shareholders than Amazon investors. Following the announcement, the healthcare company's stock soared 67%, but Amazon’s barely climbed 1%.

That's not a surprise, because Amazon has agreed to pay $18 per share for One Medical — a 77% premium on its stock's last trading price.

But the premium might be nothing compared to the synergies that Amazon Health Services Senior Vice President Neil Lindsay is counting on. "We think healthcare is high on the list of experiences that need reinvention,” he stated.

Among the many inconveniences associated with our healthcare system as-is, he listed making an appointment, taking time off work, finding a parking spot, and going to a drug store.

The Hidden Synergy

But I don't think the key reason why Amazon acquired One Medical involves improving industry inefficiencies. In my opinion, what truly makes this deal valuable enough to justify paying a 77% premium on a loss-making company is the fact that Amazon is not an e-commerce company. Rather, it's a tech company.

By offering low-cost healthcare services (probably along with its Prime membership program), Amazon will be able to gather valuable data from its users and develop new and more efficient products.

In other words, the One Medical acquisition might represent Amazon’s path not only to healthcare, but to the healthtech market.

A Long-Term Strategy

In the end, Wall Street seems bullish on the acquisition. Citi analyst Daniel Grosslight wrote that the "blending of virtual and in-person care is core to both One Medical and Amazon Care's strategy."

I still wouldn’t expect any real changes in Amazon’s streams of revenue now, though. Building a healthcare e-commerce strategy, gathering data that can be used to offer more efficient treatments, and finally profiting from them is a process that certainly takes time.

Still, it makes me bullish on Amazon’s long-term strategy and, therefore, its stock.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Wall Street’s top investment firms are confident Amazon  (AMZN) - Get Free Report is still poised to deliver two-digit annual growth. According to Tip Ranks, of the 32 analysts covering the stock, only one has a “hold” recommendation. The other 31 have an "outperform" rating.

Yet many of those analysts have also lowered their price targets for Amazon in the last two weeks. This would imply their previous valuations were over-optimistic.

As we approach Amazon’s second-quarter earnings release, which message should investors focus their attention on: the drop in price targets or the "buy" recommendation?

(Read more from the Amazon Maven: Amazon Prime Day: Was It Enough to Save the Quarter?)

Amazon Is a Good Company

Until recently, the market considered Big Tech companies to be relatively safe. All of the "FAANG" stocks — Meta  (META) - Get Free Report, Apple  (AAPL) - Get Free Report, Netflix  (NFLX) - Get Free Report, Alphabet  (GOOGL) - Get Free Report, and Amazon — enjoyed massive scale advantages and produced generous mountains of cash.

They even appeared to be pandemic-proof, as their stocks soared while many traditional companies tumbled.

However, the fairy tale has come to an end, and tech stocks have sunk in 2022.

Meta and Netflix, in particular, have bled heavily this year. Alphabet and Apple have somehow managed to keep from tanking their stocks.

In my opinion, Amazon is a good company, much closer to Apple and Amazon than to Meta and Netflix.

Take Netflix, for example. Its biggest problem isn't a macro headwind or another bad effect of the economic cycle. It's losing subscribers to heated competition. The same goes for Meta — it's losing market share to TikTok. Neither company's problems are going to go away once the economy improves.

On the other hand, Amazon will be ready to flourish again once the economy recovers its growth track. Not only is the Seattle-based titan the market leader in two important industries — e-commerce and cloud computing — but no competitor can outlast it in our current inflationary scenario.

Bad Timing

Of course, that's not to say that all of Amazon's issues are external. But they do play important roles in the company's ability to generate revenue.

Growing inflation causes higher interest rates, and higher interest rates cause the cost of borrowing to increase. It also makes cash and equity more expensive.

Considering that Amazon spent much of its cash on infrastructure investments, it is natural that investors are more likely to think Amazon is a less efficient company, instead of blaming the current market cycle.

A Great Opportunity?

Amazon’s lower-than-expected results are related mostly to macroeconomics. Eventually, favorable winds will blow again.

Amazon is a good investment for the long term. So the current selloff is a good opportunity to purchase the stock at a discount.

Monness Crespi Hart analyst Brian White would agree. He recently lowered his price target from $185 to $172, but noted that Amazon is “well positioned as a key beneficiary of digital transformation, but the economy appears to be in a recession, regulatory headwinds persist, equity markets are in turmoil, and the geopolitical landscape has been daunting.”

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

High inflation trimmed Amazon’s  (AMZN) - Get Free Report e-commerce growth in the first quarter of 2022. The segment made 1% less than it did the year before.

Last week, Amazon held its annual Prime Day sales event. While the sale barely caused a ripple in AMZN stock, it should offer investors a spark of hope. Here's why.

(Read more from the Amazon Maven: Will Amazon Acquire EA Games? 3 Reasons To Buy And 3 Reasons Not To)

Everyone Was Already Bearish (and That’s a Good Sign)

One effect of higher-than-expected inflation rates is the need to revise retail industry projections. Analyst forecasts anticipated that Prime Day would be positive, but far from spectacular.

“We estimate that Prime Day will contribute $8.1 billion in gross merchandising volume and $4.7 billion to net sales,” said Jefferies Financial Group’s Brent Hill.

And JPMorgan’s Doug Anmuth predicted the two-day event would generate $3.8 billion in incremental revenue for Amazon — a 7% increase year over year.

Amazon has not disclosed its Prime Day sales figures, despite announcing that 2022's event beat a historical record. However, according to Adobe’s  (ADBE) - Get Free Report projections, revenues reached $12 billion, an 8.5% increase over 2021.

This would mean the e-commerce juggernaut did better during the Prime Day event than analysts expected. And that could extend to the company’s entire second quarter.

Prime Day Is Not Salvation Day

Let’s start by stating it is not a bad idea to purchase Amazon stock on Prime Day.

According to Yahoo Finance contributor Louis Navellier, historically, investing in Amazon's stock on the first day of Prime Day and then holding for a month has generated an average return of 6.62%.

However, purchasing and holding the stock for any other month-long period would generate merely a 3.95% return.

Still, I don’t believe Prime Day significantly influences Amazon's stock. The e-commerce segment sold $407 billion at a 1.6% operating margin in 2021. This means the event adds very little to its bottom line and is far from being the most important driver of cash flow.

A Spark of Bullishness

Wall Street was hopeful inflationary pressures would ease and Amazon would get back on its growth track by the second half of the year. As we approach August, inflation is still far from under control, with another 75-basis-point interest rate hike still on the table.

In such a tough scenario, Prime Day's better-than-expected revenues could be a positive macroeconomic sign from a consumer standpoint.

Yet it is just a small spark of hope. According to JPMorgan analyst Doug Anmuth, “E-commerce still faces pressures from ongoing supply-chain disruption and a tight labor market, along with inflation and slowing consumer discretionary spending, all of which could weigh on [near-term] growth and [full-year] profitability.”

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

After Microsoft  (MSFT) - Get Free Report proposed an acquisition deal for Activision Blizzard  (ATVI) - Get Free Report and Sony  (SONY) - Get Free Report made its move on the video game studio Bungie, Amazon Maven speculated as to which companies would be best suited to be acquired by e-commerce juggernaut Amazon. Our first candidate: EA Games.

Did the deal seem unlikely at the time? Yes, and we still think it is.

According to Puck’s Dylan Byers, EA Games has been “persistent in pursuing a sale.” Amazon, Apple, and Disney are the prime candidates. If Amazon  (AMZN) - Get Free Report is serious about entering the videogame sector, this deal could represent the shortcut it needs. But would it really be in Amazon’s best interest to acquire EA?

(Read more from Amazon Maven: Amazon Stock: Should You Buy In July 2022?)

The Bull Take: It’s Good, It’s Cheap, It’s Affordable

1. Great opportunity: the video game space grew considerably over the past few years, partially thanks to the shift to stay-at-home entertainment options during the pandemic. Today, the industry is worth $200 billion. And it is poised to grow at a 12% CAGR through 2028. To put things into perspective, video games have already become a bigger business than TV and movie combined.

1. Businesses with synergies: Amazon’s biggest game releases thus far have been the original games New World and Lost Ark and the game streaming service Luna. But despite its advances, Amazon is still far behind industry veterans such as Sony and Nintendo. Therefore, the e-commerce behemoth has a lot to gain by acquiring a more experienced ally, instead of trying to in-house develop 100% of its products.

1. The selloff made EA cheaper: the company stock lost about 8% of its value in 2022, which in theory should help Amazon bargain to acquire the company at a lower price. According to Wall Street, EA Games has a 20% upside, despite being 25% above its pre-pandemic price.

The Bear Take: It’s Bad, It’s Expensive, It’s Definitely Not Affordable

1. Terrible timing: Capital is more expensive in 2022 than it was a year ago. Plus, Microsoft has paid a 45% premium for its acquisition of Activision. As EA Games is worth $38 billion today, Amazon might need to cash out as much as $55 billion to close the deal. It would have been easier if Amazon had made its move before Microsoft set the purchasing bar so high.

1. No synergies at all: Amazon’s investments in video games are tiny forays compared to its spending on logistics infrastructure or data centers. The truth is that Amazon Games is not a part of the company’s core business, and making a move on EA right now (with AMZN’s own stock 32% down YTD) could make shareholders even more worried.

1. The selloff made Amazon cash poor: Amazon has invested heavily in logistics and warehousing infrastructure throughout the pandemic. As the e-commerce behemoth would likely be forced to use cash to acquire EA, Amazon would drain its cash reserves almost completely - the company has only about $18.8 billion in net cash right now.

Our Take

Is the deal likely to happen? According to Jefferies’ Andrew Uerkwitz, investors shouldn’t hold their breath. "While our imagination can make several deals make sense on paper, we continue to believe the probability favors no deal over a deal for the next several quarters”, he says.

I personally believe EA Games would fit nicely under Amazon’s umbrella. However, in the end, this proposition is just another bet. And, in the current moment, the cons do seem to be greater than the pros. The cost of capital is high, and Amazon would have to beat out both Disney and Apple’s (potential) offers. Shareholders could start doubting management’s decision if the merger didn’t show the expected results quickly. For the time being, I am afraid acquisition rumors will remain just that - rumors. 

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Amazon’s  (AMZN) - Get Free Report stock price has fallen an eye-popping 39% since the beginning of this year. Investors have balked as the company has failed to address consensus growth expectations. Plus, the e-commerce giant revealed a bottom-line loss during its most recent first-quarter earnings release.

However, even as many investors seem to be bailing on Amazon, Wall Street remains faithful. Analysts believe that those who wait patiently will be rewarded with massive gains: according to TipRanks, the average target price on AMZN is $177, implying a 69% upside.

So, might July be the month when Amazon finally gets its groove back?

(Read more from Amazon Maven: Why One Amazon Bull Has Trimmed His Rating)

AMZN Optimism Might Have to Wait a Little Longer

By the start of 2022, analysts across Wall Street were worried about how inflation would play out through the year.

Better-than-expected sales during the 2021 holiday season and reassurances from the Fed may have misled many investors into thinking inflation would be transitory. Indeed, even at the end of 2021, Wall Street’s expectations were high. Plenty of firms, such as Goldman Sachs, Wells Fargo, and Bank of America, picked AMZN as their top stock in the internet space for 2022. Analysts were convinced inflation would hold back the retail industry for the first half of the year but that e-commerce would be back on track by Q3 and 4.

Now, July is here, and many Amazon bulls are pinning their hopes on Prime Day instead. Others are looking to gains in Amazon’s AWS’ and advertising segments, which are poised to grow and are less likely to suffer the direct impact of the macroeconomic scenario.

Still, strong market headwinds may wear down the enthusiasm of even the cheeriest Amazon optimists.

Winter Is Coming

The fact that Wall Street’s bull case didn’t come to fruition is not the biggest issue with Amazon. Rather, the problem is that the bear case turned out to be far worse than most expected. Inflation has been more persistent than analysts projected, and markets have been tense, to say the least. The question on many investors’ minds: how hawkish will the Fed’s monetary policy become to compensate for its quantitative easing during the pandemic?

Further rate hikes will trim the premium potential the equities market is able to offer over government treasuries. That is bad news for the S&P 500 index, but even worse for the growth-driven, tech-heavy Nasdaq Composite - and by extension, Amazon stock.

Is the Long-Term Picture Any Better?

As inflation approaches highs not seen since 1973, plenty seem to be taking on a “world-is-ending” outlook. Some leading investors are concerned the markets are headed for a crash from which they’ll never fully recover. But this fearful atmosphere could be the perfect environment for more risk-friendly investors that wish to buy the dip on Amazon.

Here’s why: although inflationary pressures might last longer than expected, they are not sticking around forever. Meanwhile, Amazon has nearly half of the US online retail market, a third of cloud computing industry revenues, and an expanding advertising business that is already larger than YouTube.

The Seattle-based titan’s stock is likely to regain momentum as the company jumpstarts revenue expansion and recovers its margins. 

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

Macroeconomic headwinds continue to buffer Amazon  (AMZN) - Get Free Report shares. COVID lockdowns in China remain an issue, supply chains are still disrupted, and fuel prices keep surging due to inflationary pressures.

Still, some Wall Street bulls have refused to throw in the towel on Amazon. They've believed the stock could recover its mojo in the second half of the year.

But the bulls might be slowly losing hope.

Evercore ISI analyst Mark Mahaney — one of the greatest Amazon enthusiasts — just trimmed his price target on the stock.

(Read more from Amazon Maven: Amazon E-commerce: More Losses Ahead)

An Environment of Rising Rates

Mahaney said that our current scenario of inflation and interest rate hikes might be the worst environment for growth equity since the end of 2018. Although he doesn't believe that there are any stocks that can perfectly defend against the current scenario, he said that Amazon and Alphabet  (GOOGL) - Get Free Report are his best bets.

“If we get a real conviction of interest rate increases, then growth equities and tech stocks can work again, and that may require another Fed meeting for the market to really gain confidence in that," Mahaney said. "So I am continuing to be kind of defensive in a sector that really doesn’t have a lot of defensive names, but I am sticking with the names like Amazon and Google, the two best-quality names in the space.”

According to Mahaney, the reason why interest rate hikes are particularly bad for tech stocks is because the stocks have high-multiple future earnings expectations.

"Inflation has been a killer for companies like Amazon. If you think at some point inflation will get less worse, then the stock with the most upside in that group is probably Amazon," he stated.

But Is Inflation Getting Any Better?

This is the million-dollar question.

The short answer is: Even the best analysts wouldn’t know for sure.

In fact, when asked about whether the bear market were over, “I don't know that it's over yet” was Truist (TFC) - Get Free Report Co-Chief Investment Officer Keith Lerner’s most honest answer.

The expert stated the current macroeconomic settlement is different from what we have seen so far, because the market’s last recoveries were “V-shaped.”

And why did we have them? "Because the Federal Reserve had the market's back,” Lerner explained.

As more hawkish interventions from the central bank remain on the table, and as fuel prices are not expected to fall anytime soon, the market will likely bleed for a little longer — and by extension, so will Amazon's stock.

Bear Case Adjustment

Amazon is not a bad company per se. The current macro scenario plays a major role in the company’s fate, and analysts must adjust their targets to reflect that.

Mahaney stated Amazon remains well positioned to get through macroeconomic woes. But the analyst was forced to review his expectations for the company, trimming his price target from $205 to $180.

We can’t say it came as a surprise, though. Goldman Sachs’  (GS) - Get Free Report Eric Sheridan recently lowered his growth expectations for the company’s earnings before interest and taxes to better adjust expectations amid the current bearish economic cycle.

And as the macro scenario remains uncertain, investors should not be surprised if more Wall Street analysts join Mahaney and Sheridan in the “less bullish on Amazon” club.

(Read more from Amazon Maven: Hold AMZN? Why This Analyst Lowered His Price Target)

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)

2022 has not been kind to Amazon  (AMZN) - Get Free Report shareholders. However, Wall Street analysts are almost unanimous in the idea that the e-commerce giant will emerge stronger from the current economic crisis.

Yes, I wrote "almost."

Rosenblatt Securities’ Barton Crockett is the exception to the rule. The analyst recommended investors “hold” their shares in April, at a price of $3,000 — equivalent to $150 after the split. And although the analyst has maintained his neutral rating, he recently lowered his valuation to $107.

Here's why Crockett changed his mind.

(Read more from Amazon Maven: Amazon E-commerce: More Losses Ahead)

E-commerce: Still the Reason to Sell

Crockett’s pessimistic forecast might be turning to reality: Amazon is not resistant to the inflationary environment. His investment thesis has implied the e-commerce juggernaut does not possess pricing power over consumers due to the retail industry’s natural competitiveness.

"We continue to see consensus long-term sales estimates as too high, mainly from what we see as excessive long-term optimism for online retail," said Crockett. "Amazon's multi-year extraordinary outperformance in retail has substantially diminished. We expect that to persist."

The bad news turned worse when the U.S. Census Bureau reported that, by the fourth quarter of 2021, e-commerce sales had returned to their pre-pandemic market share of 12.9%, from 15.7% in the second quarter of 2020 — right after the start of the first lockdowns.

Since competitors — such as Walmart  (WMT) - Get Free Report and Target  (TGT) - Get Free Report — hold better positions in the brick-and-mortar retail space, sales that would have gone online could have ended up happening offline, due to the consumer behavior shift to pre-pandemic patterns.

AWS: Still the Reason to Buy

Crockett remains bullish on AWS, Amazon's cloud computing business, though. The cloud arm was responsible for bringing $6.5 billion in operating profits in the first quarter of 2022, bringing the company’s consolidated operating profit to a total of $3.7 billion.

"Other elements of Amazon remain secularly hearty, including AWS. Progression towars retail maturity and heightened macro risks move us to lower long-term multiple assumptions, reducing our price target," the analyst added.

Still Sell + Still Buy = Still Hold

Rosenblatt’s overall thesis hasn’t changed much from April to June, except for the extension of its projections for the e-commerce titan: "Our 2Q22E Amazon total sales projection is consistent with guidance and FactSet consensus. But our 3Q22E, 4Q22E, 2023E and 2024E are 3% to 6% lower."

In the end, Crockett believes Amazon’s e-commerce growth will hardly outperform the broader U.S. retail industry, as the move of Prime Day from the second to the third quarter in 2021 will distort comparisons.

Still, the macro scenario is still the major concern. Crockett believes inflationary pressures on Amazon’s profitability will persist for longer than the overall market projections.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Amazon Maven)

Amazon  (AMZN) - Get Free Report has been suffering from multiple factors. The inflationary environment has been pressuring the company’s margins, leading to its first bottom-line loss in almost seven years. Since supply chains are most likely far from a full recovery, the stock is poised for further losses.

Still, Wall Street’s top firms hold an overweighting recommendation on AMZN: analysts expect the company’s retail arm (online and physical stores, plus third-party sellers) to present double-digit growth throughout the second half of the year, as the company also recovers to a 4-5% operating margin.

Here is why it might be too soon to expect such a turnaround.

(Read more from Amazon Maven: Amazon Stock After the Split: Still Time to Buy?)

Fewer Visitors Coming for the Virtual Display

Just as we can relate the revenues generated by shopping mall stores to the fullness of the parking lot, online marketplaces’ sales can be predicted by the online traffic directed to their websites.

The bad news is, according to Jefferies’ Brent Thill, the online traffic to Amazon.com was 6% lower in both April and May, compared to last year. “A substantial slowdown,” he stated, considering the 15% web traffic growth the company had in 2020 (even though those figures were raised by the COVID lockdowns).

If it makes things any better (or at least not so gloomy), Amazon isn't the only e-commerce company suffering from fewer visitors. Walmart  (WMT) - Get Free Report and Target  (TGT) - Get Free Report are also seeing traffic declines.

According to Thill, the culprits for this slowdown include “a return to in person shopping, difficult comps, and a shift in consumption to other discretionary spending buckets (e.g., travel and dining).

In the end, Amazon isn't losing its market share, but is suffering from the whole e-commerce market shrinking. In this case, the Seattle-based behemoth wouldn’t be able to completely avoid the losses, but it should make sure to bleed less than its opponents.

Wall Street: Too Nice to Amazon

According to the Wall Street Journal’s Dan Gallagher, Amazon's stock would be better off without the top investment firms’ overoptimism. The company’s CEO, Andy Jassy, has already been facing significant headwinds that are not going away anytime soon, and “high targets from Wall Street don’t make things any easier,” Gallagher wrote.

The business reporter justified his thesis by taking into account the Seattle-based titan’s most recent steps. The company is working to sublease about 10 million square feet of excess warehouse space, and is also putting off the construction of some of its new facilities and renegotiating some of its warehouse leases.

Those are not good signs, considering that Amazon's investments into physical space during the pandemic was partially responsible for depleting its cash flow.

However, it gets worse. As Gallagher noted, the “23-year Amazon vet Dave Clark, who ran the company’s retail and logistics operations, presented a three-year turnaround plan for those divisions to Amazon’s board on May 25 — just days before he resigned from the company.”

Our Take

From our perspective, Amazon seems to have recognized its investments throughout the pandemic might have been exaggerated, and now the company is trying to trim its losses. However, losing one of its veteran executives days just after he presented his own turnaround plan could mean issues might be worse than analysts are anticipating.

As a result, the consequences will be severe. According to Thill, Amazon’s operating income could stay “muted” throughout 2022, as the company remains vulnerable to a combination of wage inflation and the fact that Amazon nearly doubled its headcount during the pandemic.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Amazon Maven)

Amazon  (AMZN) - Get Free Report has finally delivered its 20-for-1 stock split. From a fundamentals perspective, investors should see zero consequence — splits have merely cosmetic effects. However, from a historical point of view, companies that split their stocks usually see their market capitalization values increase.

At first, that seemed to be the case for Amazon. The stock hit a peak on June 2, four days before the split was officially carried out. However, celebrations were brief. The stock tanked right after the split, falling to $104 the next week. As the selloff continues, investors could be asking themselves: Is it still time to buy some AMZN shares?

(Read more from Amazon Maven: Amazon Stock: 55% Upside Potential, says Goldman Sachs)

Positive Signs — Sort Of

Stock splits are the equivalent of trading a dollar bill for four quarters or 10 pennies. The overall value remains the same, no matter how you split it.

Still, the split might generate positive effects in the medium term. For instance, investors unable to purchase fractional shares might have access to the stock after the split.

"While not altering anything with the fundamentals, stock splits of this nature have been perceived as a shareholder-friendly move in that a lower price per share makes share ownership more accessible to a wider audience of investors," noted Goldman Sachs’ Eric Sheridan.

In addition, the split could help Amazon be included in the Dow Jones industrial average  (DJIA) . If so, the demand for ETFs indexed to DJIA performance could drive demand for AMZN up.

Also, there is the buy back worth $10 billion, which could generate better alignment between Amazon’s management incentives and its shareholders.

The Analysts’ View

Wall Street believes the stock split was a win. Morgan Stanley’s Brian Nowak called it “shareholder friendly,” referring to its capability to make the stock more affordable to retail investors.

Bank of America Global Research’s Jared Woodard seems to agree, saying, “Investors who have wanted to gain or increase exposure may start to rush for the chance to buy.”

And according to JMP Group’s CEO Mark Lehmann, stock splits usually are a sign of optimism. “Very few companies split their stock in anticipation of things going poorly. It’s an example of what’s reflected in the entire market.”

Wells Fargo and Wolfe Research also highlighted the $10 billion share buyback as another positive feature.

And Investopedia’s Editor-in-Chief Caleb Silver joined the chorus of the analysts praising the split's timing: "Amazon's stock split comes at a critical time for investors. Shares of AMZN are down 23% year-to-date, and down 20% in the past year. While the split doesn't change the value of the shares, a lower price point may attract more price-conscious buyers who have been waiting to own the stock."

So Should Investors Still Buy AMZN?

Inflationary pressures constricting Amazon’s e-commerce segment remain the primary issue involving the stock’s performance potential. Although Wall Street’s optimistic sentiment toward the split shows it was indeed a good (and maybe necessary) catalyst, it is unlikely to be sufficient to create a solid momentum drive.

According to the Bank of America, companies that split their stocks have outperformed the S&P 500 index three, six, and 12 months after the initial announcement. However, if Amazon discloses slower revenue growth rates and lower operating margins, I don’t believe the company will cut above this average.

In the end, I believe investing in Amazon to take advantage of the market’s sentiment toward the split is an asymmetric risk due to the current environment. Therefore, shareholders should stick to the company’s fundamentals and know their tolerance for volatility.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Amazon Maven)

Investment bank Goldman Sachs  (GS) - Get Free Report has had a heavy hand in the past few days. Analyst Eric Sheridan has been slashing many of his investment recommendations. His most notorious recent downgrade is Netflix  (NFLX) - Get Free Report, which he rated as a “sell” with a price target of $186.

Sheridan has also been bearish on Roblox  (RBLX) - Get Free Report, Frontdoor  (FTDR) - Get Free Report, eBay  (EBAY) - Get Free Report, Airbnb   (ABNB) - Get Free Report, and Ubisoft   (UBSFY) .

However, despite its recent losses, Sheridan has kept Amazon  (AMZN) - Get Free Report as Goldman's top pick for 2022. Here's why.

(Read more from Amazon Maven: Inflationary Scenario: Why Amazon Stock Could Be Undervalued)

Lower Expectations, Higher Upside

At the end of 2021, Goldman was significantly bullish on Amazon stock. The investment firm expected the e-commerce behemoth’s multi-streams of revenue would lead to better diversification and, by consequence, higher profitability. At the time, Sheridan had a price target price of $4,100 on AMZN, which represented a potential upside of 15%l.

However, the macroeconomic scenario led Amazon to report worse-than-expected results, and the analyst reviewed his projections on the company. Sheridan has lowered his estimated revenue and EBIT growth assumptions, as the global consumer environment has been trimming e-commerce growth.

“We view current levels as fully reflective of investor concerns on both revenues and profitability into 2022 and view AMZN exposed to a number of broader secular growth themes,” he commented. As a result, Goldman lowered its target on Amazon stock from $185 to $170. The recent valuation still implies a 55% upside.

What Other Firms Are Saying

BMO Capital Markets’ Daniel Salmon has reiterated Amazon stock as its top pick, with a price target of $172.50. Salmon believes the company is poised to overcome headwinds and expand profitability, as it is also well positioned in two highly growing industries — e-commerce and cloud computing.

"Labor optimization is underway, and we expect fixed-cost overcapacity to be absorbed by the holiday season. Once clear of these headwinds, we expect AMZN's position leading the secular shift to consumer e-commerce and enterprise cloud services should return to the fore," he noted.

Citigroup seems to agree, as the firm recently added Amazon to its list of “oversold stocks,” suggesting this would be the time to “buy the stock on the dip.” Citi removed AMZN from its top pick list after the company disclosed its results for the first quarter.

By adding Amazon stock to its “oversold” list and taking into consideration the fact that Citi’s Ronald Josey prices AMZN at $205, we could imply Citi believes investor fears are exaggerated and the negative impact on Amazon financials in the first quarter could be overcome by the upcoming quarters.

Our Take

As acknowledged by Amazon CFO Brian Olsavsky, the company's profitability has been bleeding because of both internal and external factors. The first are related to higher wages and overstaffing and are easier to stanch. Investors should be watching closely whether the company is increasing or decreasing its headcount.

The external factors, however, are a much deeper wound. Inflation rates remain high, which basically affects people’s willingness to buy stuff, and fuel costs are still a concern, which ultimately leads to higher shipping expenses. Since it’s impossible to predict when these factors will ease, it is hard to predict when Amazon’s expected upside potential will actually come to fruition.

By its very nature, retail is a low-margin business. And in times of rising inflation, profitability shrinks even more.

Amazon  (AMZN) - Get Free Report has never really had to deal with rampant inflation before. So we're seeing a lot of fear and uncertainty among investors.

But fear and uncertainty often create the best opportunities.

Today, the Amazon Maven gives its take on the macro scenario. Is the worst finally over? Will inflation persist for much longer? And more importantly, what does it mean for Amazon shareholders? Is the stock undervalued, and should investors buy the dip?

(Read more from Amazon Maven: Google to Try E-commerce: Why It's Good News for Amazon Shareholders)

Bullish Perspectives Amid Inflation

After the last time the Federal Reserve hiked interest rates by 50 basis points, JPMorgan’s Wealth Management division discussed a potential path for stock market bulls.

Because our current inflation has been caused by strong demand, rather than a lack of supply, prices could start to stabilize once companies are able to rebuild their inventories, as shown below:

“While we may need to muddle through several more hot reports in the meantime, slower growth on the back of tighter financial conditions, continued normalization of COVID-driven inflation and tougher year-over-year comps should, in our view, allow price pressures to begin decelerating into year-end,” wrote JPMorgan’s Global Market Strategist Madison Faller.

According to Faller, the Fed’s interest rates hikes have helped relieve some of the pressure on the market, allowing it to stabilize with fewer hikes than the market had expected.

Buy the Dip?

Amazon’s price/sales multiple revolves around 2-4 times. Its closest e-commerce competitor, Walmart  (WMT) - Get Free Report, has traded at 0.54 times sales for the last 10 years, on average.

So is Amazon expensive?

Well, according to Seeking Alpha author Michael Dolen, quite the opposite is true.

Amazon is not only an asset-heavy retail business, but also an asset-light software company (AWS). The main difference is the former has low margins, while the latter is significantly profitable.

How profitable? According to Dolen, it's profitable enough that AMZN investors are basically buying AWS and receiving Amazon's e-commerce segments for free.

Dolen conservatively projects that AWS should generate around $80 billion this year, $100 billion in 2023, and $125 billion in 2024. That implies 25% growth year over year — a slowdown, if we consider the cloud arm has been growing nearly 30% for the past quarters.

Considering a 25 times multiple for the 2024 figure — which Dolen argues is reasonable, compared to other big techs such as Microsoft  (MSFT) - Get Free Report — and a 33% profit margin, AWS’s enterprise value should be $1.03 trillion.

At $125 per share, Amazon’s current market cap is $1.27 trillion. $125 suddenly feels cheap, doesn’t it?

Over the Long Run

The selloff has created an environment in which investors are embracing a variety of opportunities. JPMorgan’s Madison Faller believes this is a compelling time for entering both bonds and stocks (she also highlights that quality is essential).

“For the first time in years, we don’t think we’re paying a premium for equities. Equity valuations have compressed meaningfully and are back in line with longer-term averages,” she wrote.

Although Fallen didn’t talk specifically about AMZN or the tech sector in her analysis, we can conclude from Dolen's valuation that the Seattle-based titan fits the opportunity checkbox.

Therefore, Amazon remains a good long-term investment.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Amazon Maven)

According to a recent article from Bloomberg, Google is preparing to venture into e-commerce.

This is actually not the first time the company has tried to create its own online marketplace. Google attempted to compete with Amazon  (AMZN) - Get Free Report back in 2013 but never got any expressible results.

Now the search engine company, which is owned by Alphabet  (GOOGL) - Get Free Report, is preparing for a new offensive and is confident it will be able to threaten Amazon’s market share.

Should AMZN shareholders be concerned?

Actually, we believe quite the opposite. In fact, we think it's a sign that Amazon shareholders should stay invested — and maybe even buy more AMZN stock.

(Read more from Wall Street Memes: Amazon Stock: What to Expect for June 2022)

Google’s E-commerce Strategy

In 2013, Google created its own online retail arm, Shopping Express, through a partnership with retail giants such as Target (TGT) and Walgreens (WBA). The project failed for two main reasons:

1. The company wasn’t able to expand its delivery infrastructure to meet demand
2. Google’s “Shopping” tab didn’t attract as many visitors as its "Search" tab

This time, Google’s offensive is being headed by executive Prabhakar Raghavan, who was responsible for the creation of the company’s main services. Instead of copying its main rival, Raghavan's plan is to make Google an “anti-Amazon” by creating a free marketplace for merchants.

Raghavan wants to further differentiate Google’s product by adding features to help customers search for items to purchase. For example, you'll be able to take a photo of a product that you want with your smartphone camera, then go to the Google app to buy the same product online with one click.

The search engine will also be able to identify discounts and loyalty programs.

Is Google a Threat to Amazon?

If Google succeeds in its venture, it would give Amazon’s third-party sellers another way to conduct their businesses outside Bezos’ behemoth marketplace. That could force Amazon to cut fees or offer discounts for its sellers.

Still, according to Rick Watson, head of RMW Commerce Consulting, those fears are far from becoming reality: “For the past 15 years, Google has been trying to figure out commerce. And they’ve never really executed.”

By adding an e-commerce marketplace to its search website, Google is incurring several risks. It could confuse its own users trying to research items on other sites, rather than buying on Google.

Regulators could also deem it to be a monopoly (this happened with Google Express in Europe in 2015). If that happens, the company could be forced to split its services.

Amazon has an ad business to complement its e-commerce marketplace, while Google is trying to achieve success by doing the opposite. According to Mike Ryan, portfolio strategist for Smarter Ecommerce, “That seems to be working way better for Amazon than it is for Google.”

Why Could This Rivalry Be a Positive Sign for AMZN?

Let’s look at the big picture.

In 2022, macroeconomic headwinds forced Amazon's stock to lose all of the gains it made during the COVID pandemic. The company even disclosed a loss for its e-commerce business, something investors had not seen since 2015.

Still, the e-commerce market is projected to reach $2.27 trillion in 2025. Not only is Google trying to crack it, but Meta  (FB) - Get Free Report and TikTok are also trying to get in on these gains too.

That's because, as the graph illustrates below, retail can help these companies generate more ad revenue.

Our Take

Because so many companies are willing to invest in their own e-commerce marketplaces at such a delicate macroeconomic moment, we can't help but conclude that this is a high-potential market.

Therefore, because Amazon already dominates the e-commerce market and has a growing ad business arm, we think the Seattle-based titan is the company best positioned to profit.

Once the current e-commerce headwinds are over, AMZN shareholders' patience will — finally — be rewarded. 

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Amazon Maven)

After nearly four months of uninterrupted declines in Amazon's  (AMZN) - Get Free Report stock, shareholders have finally started to see some gains. Since May 26, AMZN has climbed more than 16%.

However, it's not safe to say Amazon is regaining its momentum just yet. We're still seeing rampant inflation, which is likely to cause equity markets to bleed — and, by extension, so will Amazon shares.

(Read more from Wall Street Memes: 3 Reasons Why Amazon Is Cheap Right Now)

A Quick Breather

Amazon shareholders have been through an emotional roller coaster. The stock soared throughout 2020 at the peak of the COVID pandemic. Then it started walking sideways. By the end of 2021, it wasn't really going anywhere. And as the stock market sank in 2022, AMZN nearly lost all of its pandemic gains.

However, shareholders had a glimmer of hope last week. Amazon's stock had its best four-day performance in two years right after its shareholders approved its stock split. Shares soared 17% from the past week, and they could keep climbing until at least June 6, when the stock will start trading at its 20-for-1 adjusted price.

As the Amazon Maven has discussed previously, stock splits historically cause share prices to increase for a short period of time. However, they do not add any real value to the company.

Here's a simple analogy: Splitting a stock is just like trading one $20 bill for 20 $1 bills — you’ve got more bills, but you haven't gotten any richer.

Prepare for New Dips

The split will have no real impact on Amazon’s fundamentals. However, the macroeconomic scenario certainly does have an effect on them, and it's very unlikely to ease in June. The S&P 500 did regain some value (it's about 4% up since last week). But Wall Street analysts believe more losses are coming.

According to Morgan Stanley’s Michael Wilson, the S&P 500 is set to decrease 17% by the end of August, declining to $3,400 (the benchmark trades at $4,100 today). Jonathan Krinsky, chief market technician at BTIG, agrees. He believes the S&P 500 will fall to $3,400- 3,500. But he believes the equities index will still bounce between $3,800 and $4,250 before hitting the bottom.

“The market was primed for at least a short-term snap-back,” said Sam Stovall, chief investment strategist at CFRA Research. “We remain skeptical of this rally’s sustainability.” Stovall noted that the S&P 500’s forward 12-month estimated P/E ratio was 16.8, the lowest ratio since April 2020.

A Light at the Middle of the Tunnel?

The macro scenario will most likely trim Amazon’s profitability for the upcoming quarter. We'll only be able to understand what effect this will have had after the company’s second-quarter earnings conference.

However, there are some short-term events that could help increase Amazon's net sales: back-to-school season and Prime Day, which is happening in July. The boost in demand could help Amazon’s bottom line until the company is able to overcome its external headwinds.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Amazon Maven)

In our last take, we approached the reasons why Amazon  (AMZN) - Get Free Report might still take a long time to recover. Macroeconomic headwinds are the main culprit, because the company has no control over them, and there is no sure way to predict when they will be over.

However, there's a silver lining to the stock's drop. Today, we will argue why the current selloff is a great opportunity for equity investors — especially the most risk-appetitive ones.

(Read more from Amazon Maven: 3 Reasons Why Amazon Stock’s Selloff Is Far From Over)

A Reasonable Valuation?

Saying Amazon looks almost “free” may be an exaggeration, but AMZN could be cheap depending on what metric investors decide to use. Yes, it is true the stock price implies considerable growth with regards to its internet peers: Amazon's EV/EBITDA is 16.75, while the sector average is 8.70.

Considering the current macroeconomic scenario, some investors might believe Amazon won’t be capable of meeting such high expectations, especially when it comes to e-commerce.

However, when it comes to Big Tech, Amazon’s multiple is within the ranges of its peers: Apple's  (AAPL) - Get Free Report EV/EBITDA is 16.72, Microsoft’s  (MSFT) - Get Free Report is 20.39 and Alphabet’s  (GOOGL) - Get Free Report is 11.40. This suggests that, even if AMZN is not cheap, it might not be unreasonably expensive, either.

A Stock Split Ahead

Amazon shareholders approved the stock split. The company has argued the split would lead to more flexibility for employees to manage their own shares of Amazon, as well as making the stock more accessible for small investors.

Despite not adding any real value to a company, stock splits have a tendency of building some momentum — as we witnessed recently with Apple and Tesla  (TSLA) - Get Free Report. As Amazon's stock might be also added to the Dow Jones Industrial Average, ETF demand could also elevate its share price.

From a historical viewpoint, there seems to be more bullish arguments than bearish ones regarding this upcoming split.

New Retail Growth Drivers

At the end of the day, Amazon survives on cloud computing and online retail. Its cloud segment is poised to keep growing, as the sector appears to be recession-proof. Retail, on the other hand, is directly linked to society’s financial health.

Because of that, rampant inflation rates are a reason to worry. However, consumer demand might be about to escalate, for two main reasons: The first is Prime Day, which is a significant event (and growth lever) for pushing up consumer demand, and the second is students returning to class in the fall, which also translates to demand.

I personally believe such growth levers won’t result in any considerable expansion on a yearly basis. Nevertheless, these spikes in consumer shopping patterns during the second quarter might reveal how much Amazon’s additional infrastructure investments contribute during higher periods.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Amazon Maven)

Amazon  (AMZN) - Get Free Report shareholders, who made incredible gains throughout the global pandemic, will have to wait for the company to rebuild its momentum all over again. Shares of AMZN are currently being traded at $2,220 - that’s about 9% lower than their price two years ago.

As the equity markets suffer the consequences of inflationary headwinds, recent Covid outbreaks in China, and the Russia-Ukraine conflict, even consistently profitable tech companies such as Amazon may find it hard to deliver the same results they achieved in 2020 and 2021.

Here, we’ll list the top 3 reasons why Amazon investors should expect choppy seas ahead in the short and mid-terms.

(Read more from Amazon Maven: Amazon Stock In Free Fall: An Opportunity To Double Your Gains?)

Macroeconomic Woes Are Not Easing

A gloomy macro scenario is, by far, the most negative influence on Amazon’s stock price right now. Rampant inflation recently led the Fed to raise interest rates by 50 bps — the steepest move since 2000 — and more hikes are coming. When interest rates are raised, companies’ cost of borrowing increases, as do equity market investors' opportunity costs. In a higher interest rate environment, growth stocks like Amazon begin to look far less attractive.

China is also going to require some time to heal from its most recent Covid outbreak. Morgan Stanley’s chief China Economist, Robin Xing, is long-term optimistic but still sees some difficulty ahead in the near term: “For China, the main story here is we have seen the light at the end of the tunnel. The worst of supply chain dislocations in China from Covid lockdown looks to be over, but we also think the road to recovery will likely be slow and bumpy.”

And of course, conflict in Eastern Europe remains a considerable problem as well. As the war between Russia and Ukraine drags on, commodity prices for natural gas, oil, wheat, and other key supplies may continue to spike.

Given these multiple and diverse challenges, Amazon will have its hands full dealing with supply-chain constraints (which will impact its revenues) and inflationary pressures (which will impact its operating costs).

Internal Costs Remain an Issue

When opening Amazon’s Q1 ‘22 earnings call, CFO Brian Olsavsky praised the company’s ability to overcome many of its internal bottlenecks — mostly labor and internal-space related.

And yet, according to the company’s head financial director, labor-related productivity losses and cost inflation still added $2 billion in operating costs in Q3 of 2021 and another $4 billion in Q4 of 2021. These costs were largely due to labor shortages and increased transportation costs.

Olsavsky also stated that Amazon had lowered its operation's capital expenditures for 2022 and was evaluating other ways to increase its fixed cost leverage. Still, the company estimates internal and external incremental costs summed to $6 billion for Q1 of 2022.

The CFO projected lower incremental costs in the short term: “Approximately two-thirds of these costs are within our control, and with demand normalizing, we remain focused on rightsizing our cost structure and driving out any cost inefficiencies. Our guidance includes an expectation that we will incur approximately $4 billion of these incremental costs in Q2”, said Mr. Olsavsky.

(Read more from Amazon Maven: 2 Reasons to Buy Amazon Stock on the Dip)

Tough Comps for 2022

Last, but certainly not least, it’s important to remember that Amazon might have some trouble trying to beat its 2020 and 2021 results. From a high-level perspective, the reason seems simple: throughout the pandemic, people were home and doing much more of their shopping online. Inflation hadn’t gripped markets yet either.

But as shoppers’ consumption power is trimmed by inflationary pressures and workers return to their pre-pandemic shopping patterns, Amazon will find itself in a tough spot to maintain its impressive growth rates.

Since the market prices the Seattle behemoth largely on its growth potential, tougher comps for 2022 might make it harder for AMZN to regain its mojo this year.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Amazon Maven)

Amazon's  (AMZN) - Get Free Report stock has been bleeding due to inflationary headwinds and supply-chain woes. First-quarter results revealed that the margins of the company's e-commerce segment are significantly constrained, leading investors to question the Seattle-based behemoth’s resilience.

The stock loss has made top Wall Street analysts revise their price targets for AMZN, but it hasn't been enough to turn them into Amazon bears: Price targets range from $2,900 to $4,250.

As the stock currently trades around $2,000, the implied upside potential there varies from 40% to 107%. Here is how investing in AMZN could double your gains.

Read more from Amazon Maven: 2 Reasons to Buy Amazon Stock on the Dip

Frozen Demand? Freeze Hiring

Morgan Stanley’s Brian Nowak, who has a $3,800 target on Amazon, has acknowledged the company's first-party gross margins in the first quarter were 200 basis points lower than expected.

Nowak believes Amazon over-hired throughout the pandemic, when wages were also increasing. Indeed, in the 2021 third quarter alone, the e-commerce titan incurred an extra $2 billion in operating costs due to labor, labor-related productivity losses, and inflation.

According to the analyst, a hiring freeze could lead to a free cash flow (FCF) improvement per share. He pointed to the Seattle-based giant’s $6 billion annual spending on its “other bets” segment as his first option for cost reductions. "In our view," Nowak wrote, "AMZN still does not screen as being 'inexpensive' on FCF in this increasingly FCF focused market."

A Beacon of Hope in July

Citigroup’s Ronald Josey has explained why he removed Amazon's stock from Citi’s NAM Focus List. According to Josey, the e-commerce giant is excessively vulnerable to softening consumer spending trends.

Still, the analyst set a price target at $4,100, reiterating that Amazon is still a top pick for the internet sector. From Josey’s perspective, although the short term will negatively impact Amazon’s earnings, the company might come out stronger when the turbulence is over.

The analyst recognizes that the challenging macro scenario combined with weaker consumer demand will trim Amazon’s profitability. However, he believes July’s Prime Day, along with the back-to-school, and holiday shopping seasons, will be the catalysts the company needs to reaccelerate retail growth in the second half of the year.

Still Two Years for Amazon to Regain Efficiency

Credit Suisse’s Stephen Ju thinks AMZN stock is worth $3,700 apiece, as the analyst reiterated an “Outperform” rating on the shares. Ju justified his rating by stating that Amazon might still take two years to grow into its existing fulfillment infrastructure after the heavy investment made throughout the pandemic:

“Based on its deployed FC square footage and likely GMV growth scenarios, especially as it has until now built capacity with a two- to three-year maturity horizon, our overarching conclusions are the following:

• 1) Based on historical nominal dollars of YoY GMV growth 4Q to 4Q, we calculate that Amazon will likely return to historical levels of fulfillment center efficiency by 2024, certainly by 2025 if we were to assume much worse growth scenarios;

• 2) We believe Amazon will close 2022 with ~280mm square feet of North America fulfillment capacity, its required CapEx for 2023 build outs will likely be close to 0, pointing the way for upward bias to 2023 FCF.”

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Amazon Maven)

Amazon  (AMZN) - Get Free Report has multiple revenue streams - the Seattle-based behemoth provides everything from from e-commerce to cloud services to video streaming to advertising to logistics to satellite broadcasting and more. However, there are also revenue sources that flow indirectly to Amazon’s income statement. These are much harder to track and, therefore, are often overlooked by investors.

Research performed by Bridgewater Associates — a hedge fund that belongs to the legendary portfolio manager Ray Dalio — has shown that big tech companies, such as Amazon, Apple, Alphabet, Microsoft, and Meta, benefit greatly from investments made into early-stage companies.

The bad news is that the current inflationary environment will probably cripple that market for years to come. Here is our take on the matter.

Read more from Amazon Maven: 2 Reasons to Buy Amazon Stock on the Dip

Correlated Gains

When the venture capital industry is doing well, big tech firms’ performance tends to follow. That’s because companies such as Amazon, Apple, Alphabet, Microsoft, and Meta effectively absorb a large portion of the investments made into technology startups. Startups usually spend considerable amounts on cloud computing, marketing, and other services provided by the abovementioned tech giants.

According to Bridgewater’s report, of all the money invested in early-stage companies, 20% is spent on cloud services — where the near-triopoly of Amazon, Microsoft, and Alphabet rule. Another 40% flows to marketing companies, a realm dominated by Alphabet, Meta, and Amazon.

Indeed, Bridgewater estimates that nearly 10% of the total revenue for Alphabet, Amazon, and Meta - a staggering $84 billion annually - comes from the venture capital ecosystem. In sum, the search for “the next big thing” benefits current big tech.

Pandemic Monetary Injection

The good news for Amazon shareholders is (or was) that the venture capital industry had its best year in 2020. This was in large part thanks to the Fed’s “easy money” monetary policy throughout the Covid crisis. According to Reuters, venture capital-backed companies in the US raised nearly $130 billion through that period.

For perspective, total venture capital investment went 14% up from 2019 to 2020 — despite the number of individual deals actually decreasing 9%, down to 6,022. Mega-rounds (deals that reach the sum of $100 million or higher), on the other hand, hit their record in 2020.

“What we’re seeing is a ‘rich get richer’ phenomenon where successful, high momentum technology companies are vacuuming up most of the financing,” said Anand Sanwal, chief executive of data firm CB Insights, in an interview with Reuters.

It’s become clear, though, that in 2020, there was more money available to invest than good startup firms to invest in. As venture capitalists inflated startup’s valuations, a sizable portion of their investments ended up flowing to Amazon and other big tech companies.

Much Cloudier Skies Ahead

2020 might have been a sunny and happy year for the high-risk investment firms, but the current inflationary environment is hammering overvalued companies.

As higher interest rates make money more expensive, investors are less willing to commit their money to riskier companies. For Amazon shareholders, this might ultimately translate into a lower-than-expected growth for the company’s cloud and advertising segments. 

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Amazon Maven)

Amazon's  (AMZN) - Get Free Report stock has been bleeding in 2022. AMZN dipped to $2,107.44 last Wednesday, May 11, losing nearly all of the gains it made during the COVID pandemic. For comparison's sake, the stock was trading at $2,095.97 on February 21, 2020.

It might be far too optimistic to say AMZN has reached a bottom. Macroeconomic headwinds directly impact the company’s e-commerce business, making it impossible to predict when the selloff will end. However, there are two reasons why this could be an excellent opportunity to buy the dip.

(Read more from Amazon Maven: Amazon Shareholder Letter: 3 Insights From Andy Jassy’s First Memo)

#1 Amazon is still the dominant player

From a macro perspective, Amazon is not in a good spot. Inflation is surging, and despite the Fed's rate hikes, experts disagree about how long it will take to stabilize consumer prices.

The reason for this is the fact that prices are rising only because of pandemic-era stimulus measures, but also because of “a combination of super-strong demand and lacking supply,” according to JPMorgan.

That said, it's important to remember the e-commerce space is still expanding — U.S. e-commerce sales will grow by 15.3% in 2022, according to Insider Intelligence — and Amazon is still by far the dominant player, owning 40% of market share.

As the Seattle-based company keeps capturing online retail growth, while its cloud-computing unit, AWS, compensates for its losses, Amazon might come out as the best-positioned e-commerce player.

#2 The best time for buying AMZN

Let’s do a quick mental exercise: Pretend a time traveler hands you a set of winning lottery numbers without telling you the exact date those numbers would be drawn. What would you do? Would you play one ticket each week until you hit the jackpot?

This is how I believe Amazon's stock will play out for the upcoming years. I can’t tell exactly when AMZN will recover its mojo, but I believe it will happen sometime in the future.

Amazon is still an extremely relevant company. It dominates the U.S. online retail space and the cloud industry and has a strong-and-growing presence in many others areas, such as video streaming and advertising.

And the current selloff might just be the best time to buy. As DM Martins Research founder Daniel Martins has shown, Amazon has historically produced its most significant gains after 15%-plus and 30%-plus corrections, as illustrated below:

Wall Street Speaks

First-quarter results made Wall Street rethink its bullish stance toward Amazon's stock. Still, almost every expert kept their buy recommendation, with an average price target of nearly $3,700, implying a 60% upside.

That said, I would still reiterate that Amazon is in a delicate position, and the stock could dip even lower before recovering. Equity investing is risky. Investors must understand that higher returns usually imply higher risk exposure. Know your own risk tolerance before committing capital to AMZN or any other stock.

Twitter Speaks

When the stock market turns bullish again, how do you believe Amazon stock will perform?

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Amazon Maven)

Jeff Bezos' role as CEO may have ended in 2021, but only in 2022 have investors had the chance to read the very first shareholder letter from his successor, Andy Jassy.

Because Jassy took the reins during the COVID-19 pandemic, investors were eager to find out whether his letter would set an optimistic tone for Amazon’s  (AMZN) - Get Free Report future.

Short answer: Although he doesn't disregard current macroeconomic woes, Jassy seems confident his work will pay off.

(Read more from Amazon Maven: Amazon Post-Earnings: What Wall Street Is Saying)

Double the Size = Half the Profits?

One of the main issues regarding Amazon’s investments during the pandemic was the expansion of its fulfillment capacity. According to Jassy, the company, which spent its first 25 years building a very large fulfillment network, suddenly had to double its capacity in the last 24 months to meet customer demand.

“In the early 2000s, it took us an average of 18 hours to get an item through our fulfillment centers and on the right truck for shipment. Now, it takes us two,” Jassy wrote, addressing Amazon's internal motto that “faster is always better.”

Amazon’s properties and equipment value grew from $77,779 in the first quarter (Q1) of 2020 to $168,468 in Q1 2022. But profitability hasn't followed this pattern. The company has reported its first loss since 2015. As inflation ramps up, Amazon may see lower customer demand but higher infrastructure maintenance costs.

Improving Worker Safety

Regarding the safety of Amazon workers, Jassy highlighted that the company's injury rate was higher than its warehouse peers — 6.4 versus 5.5 — but lower than its courier and delivery peers — 7.6 versus 9.1.

The CEO remarked that Amazon has much to improve, but he believes the company’s efforts so far might also be underappreciated. “Our injury rates are sometimes misunderstood,” he wrote. Amazon is “about average relative to peers, but we don’t seek to be average. We want to be the best in class.”

“The Right Guy for the Job”

Despite macroeconomic headwinds, Motley Fool’s Jason Moser believes investors can rest easy, because there is no better professional to assume Amazon’s reins than Andy Jassy.

“Anytime you replace a long-standing CEO and founder CEO like that, there are going to be big questions as to whether you got the right person for the job, and I think just judging by this letter, and judging by the interviews I've seen with Mr. Jassy through the months leading up to the letter. It just to me, it feels they've got the right person for this job,” he said.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)

Advertising is Amazon’s  (AMZN) - Get Free Report new rising star: The segment generated over $31 billion in 2021 and is growing at a fast pace — revenue was up by 25% in the 2022 first quarter, compared to the same period in 2021.

So is it safe to say Amazon is becoming an advertising heavyweight like Google   (GOOGL) - Get Free Report and Meta  (FB) - Get Free Report?

Amazon Ads' relevance is poised to grow in the next few years. However, investors shouldn't get carried away by the market’s over-optimistic projections. A certain Chinese rookie might be about to shake up the industry and steal Google’s advertising crown before the Seattle behemoth does.

(Read more from Amazon Maven: Amazon Post-Earnings: What Wall Street Is Saying)

Already a Market Leader

Let’s start with the big picture: Google, Meta, and Amazon’s share of global advertising spending was 39% in 2020. In 2021, that figure jumped to 47% and is expected to reach 50% in 2022.

Zooming in and taking into account only digital advertising spending, the triopoly crushes the competition: Their share of the market expanded from 67% to 74% in 2021, while the rest of the digital ad market grew at a shy 3% rate over the same period.

Amazon Ads enjoyed a massive 56% growth rate from 2020 to 2021: The company managed to expand from about $20 billion to $31 billion in sales. That’s a skyrocketing pace, considering the market expected the company to reach $38 billion only in 2023.

A Potential Threat

In the first quarter of 2022, Amazon showed progress. Revenues increased 25% year-over-year. — a solid expansion, but still $250 million lower than Wall Street’s expectations. From a competition standpoint, Alphabet has bled a lot more: YouTube sales grew 14% during the period, instead of the expected 25%.

Although I personally believe Amazon’s portion of the digital advertising industry will keep increasing, YouTube’s miss could be interpreted as a warning. There are two main headwinds I believe will affect Amazon Ads growth, for now: (1) raising inflation due to COVID and (2) TikTok’s expansion.

The first reason might be the most obvious. Rising consumer prices will cause demand for new products to decrease and, by extension, sellers won’t have much cash to invest in advertising.

The second headwind is the fight for people’s attention. Analysts credit YouTube’s “poor” performance to TikTok, which is expected to reach $24 billion — the same figures generated by Google’s video platform — by 2024. Since Amazon Ads' revenues also come from live sports transmissions, Twitch, FreeVee, and Fire TV, the company is also threatened by the video platform.

A Key Advantage

Even if Amazon Ads does not expand as quickly as previously expected, it is still a fast-growing and high-margin business. In Evercore ISI’s Mark Mahaney’s words, Amazon could “tap into a new leg” of revenue growth by building out international and brand advertising.

“Key fact in plain sight: Amazon’s Ad revenue is bigger than YouTube ($31 billion vs. $29 billion in 2021) and is growing faster (56% vs. 46%). And unlike GOOGL and FB, AMZN faces no privacy-driven ad attribution headwinds, as AMZN is a closed-loop ecosystem,” said the analyst.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)

On May 4, the Federal Reserve announced a 50-basis-point raise to short-term interest rates. This is the first time in two decades that the Fed has announced such a steep hike (bumps in interest rates usually happen in 0.25% increments).

Will the Fed knock down the already-bleeding equities market? In theory, yes. However, in reality, quite the opposite has happened. On May 4, the S&P 500 index and the tech-heavy Nasdaq Composite closed at $4,301 and $12,967, respectively.

Even though this slowed down the following day, it's possible that the central bank's rate hike might have a positive impact on Amazon  (AMZN) - Get Free Report investors. Here's why.

(Read more from Amazon Maven: Amazon Post-Earnings: What Wall Street Is Saying)

What 's In the Sky? Not a Hawk

A 0.5% rise in interest rates was widely expected by the experts, so when the Fed firstly announced it, around 2 p.m. EST, the equities market did not show any big signs of excitement or disappointment.

However, 45 minutes later, something happened. As he answered questions from the press, Fed Chair Jerome Powell sounded a bit more dovish than the market expected.

Powell still expects the Fed to announce a couple more 50-basis-point increases. But the central bank commander doesn't think a 75-basis-point hike will be necessary. His message was that the Fed wishes to avoid using any higher-than-necessary intervention to combat inflation.

What Changes for Amazon Investors?

From a fundamentals perspective, any bump in interest rates is bad news for Amazon. Higher rates usually translate into (1) less consumption, which directly impacts on the company’s e-commerce segments, and (2) higher cost of capital, through both debt and equity.

However, much of this movement had already been anticipated by the market. Actually, most of the “damage” has already been done: Longer-term interest rates have already been going up for the past few months. Therefore, the hike on May 4 was a mere formalization of a previously priced-in movement.

The Key Takeaway

Truth be told, the 50-basis-point hike has most likely already been implied in Amazon trading price. Therefore, it should had no effect on how bulls and bears see the stock’s future.

The real positive driver for Amazon is the Fed's optimism that it can contain inflation. For one thing, stabilizing consumer prices means the easing of one of the main headwinds the company has been facing so far.

And for another, a dovish monetary policy allows more aggressive valuations, especially for technology companies, which could be reflected in Amazon trading multiples anytime soon.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)

Why has Wall Street kept its consensus “overweight” rating on Amazon despite the company’s lackluster results over the past few quarters? To explain, we only need three letters: AWS.

Amazon Web Services is the only one of Amazon’s segments that actually surpassed analysts' projections this past quarter. The cloud arm generated $18.44 billion in revenue during Q1, a healthy $100 million above the consensus expectation of $18.27 billion. Here is why we are excited about AWS’ - and Amazon’s - future.

(Read more from Amazon Maven: Amazon Post-Earnings: What Wall Street Is Saying)

The Cloud Industry Is Growing Fast; AWS Is Growing Even Faster

According to Synergy Research Group, the cloud computing industry grew a whopping 34% during the first quarter of 2022 alone. During that time, enterprises spent nearly $53 billion on cloud computing services.

This is an impressive growth rate, even for an industry in its early stage. But was this quarter an outlier? Not at all. In fact, this is the eleventh time in the past twelve quarters that the cloud market expansion rate fell in the 34-40% range, on a YoY basis.

And it gets even better: since the cloud market has decreasing marginal costs, market leaders — AWS, Microsoft Azure, and Google Cloud — benefit from scale advantages. We can verify this fact simply by looking at AWS’ results. Amazon’s cloud arm expanded 37% last quarter, meaning it grew at a higher rate than the overall market.

When we zoom out further, the cloud market seems to be converging towards consolidation in the “Big Three.” Together, Amazon, Microsoft, and Google own 65% of the market, and all three are growing at a faster rate than their smaller competitors. Since the first quarter of 2018, the collective revenue of non-Big-Three cloud service providers has grown by 150%. Yet during the same period, their market share has shrunk from 48% to just 35%.

A Recession-Proof Market

As we dive deeper into AWS’ numbers, we find there is no correlation between Amazon’s cloud segment and its e-commerce segment. AWS presented its best YoY growth rate for a first quarter since 2019, suggesting the cloud industry is resilient in the face of macroeconomic uncertainty and is relatively unaffected by periods of high inflation.

In fact, not even the microchip shortage is expected to affect the cloud juggernaut. In a CNBC interview, AWS CEO Adam Selipsky explained how the company develops its own chips in-house; it also plans on designing chip models that are even more efficient than the ones used on the market today.

The Best Opportunity

As for competition, AWS has the upper hand. The Seattle-based titan has 33% of the cloud market and it historically grows faster than the industry’s overall expansion rate.

However, Microsoft Azure and Google Cloud remain a considerable threat to Amazon’s cloud kingdom: according to Synergy Research Group, Microsoft has 22% of the market and it has been gaining almost two percentage points of market share per year. Google Cloud has 10% and has been growing nearly one percent of market share over the same period.

When it comes to valuation, it is hard to compare cloud segments in isolation — but we can look at tech companies in general. Here, Amazon seems to offer the best buying opportunity. According to TipRanks, the average price target on AMZN is $3,750, representing 50% upside. Meanwhile, consensus targets on Alphabet and Microsoft are at $3,250 and $350 respectively, implying upside of 37% and 25%.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)

Amazon’s  (AMZN) - Get Free Report most recent earnings report revealed a weak first quarter in 2022. Every single top investment firm in Wall Street was forced to revisit its projections for the company’s net sales — mostly for the company's e-commerce segment.

Before the first quarter (Q1) 2022 earnings disclosure, TipRanks presented an average price target of $4,160 for Amazon stock, with forecasts ranging from $3,000 to $5,000. After the release, the average fell to $3,750, with estimates varying between $2,900 and $4,655.

Today, let's compare what the Amazon bears and bulls are saying.

(Read more from Amazon Maven: Amazon Stock: Should You Buy It In May?)

The Bears

D.A. Davidson’s Tom Forte lowered his price target on Amazon from $3,900 to $3,125. He believes the growth run-up of the e-commerce segments might have ended. He wrote, "With slowing e-commerce sales growth, the company needs new revenue sources to sustain its elevated revenue growth and premium valuation multiple, in our view beyond its AWS effort, which continues to impress."

Even more bearish is Rosenblatt Securities’ Barton Crockett. The analyst, who had previously rated Amazon as a “hold,” has decreased his price target from $3,000 to $2,900. He had already been arguing that an rising inflation would trim Amazon’s profitability and affect the company’s revenue projections for the long term.

The Bulls

Bank of America remains bullish on the e-commerce behemoth, despite reducing its price target from $4,225 to $3,770. Analyst Justin Post argues the extra $4 billion cost pressures should be “manageable,” as the company should also see a “significant” expansion in profit margins from 2023 to 2025 coming from its cloud, advertising, and third-party marketplace.

Cowen & Co.’s John Blackledge has an even bolder thesis. The analyst believes Amazon has plenty of pricing power when it comes to Prime membership. Blackledge thinks the company should consider raising fees to offset its losses in the e-commerce segment.

"Think about what they have added since 2018," Blackledge explained. "All of the Prime video original content. They are adding NFL exclusive breaks for Thursday night football. They just won MGM. That's just on Prime video. They doubled their fulfillment network and delivery speeds, and are getting faster. So they have added so much in the last four years."

The Verdict

Amazon bulls and Amazon bears have some things in common. None of them disregards how inflationary costs have hammered Amazon’s e-commerce profitability or how much AWS remains a cash-generating machine for the company.

In summary: E-commerce is bad, everything else is good. And of the 32 analysts covering the stock, 31 of them rate it as a “buy,” with only one "hold" recommendation.

So the real question does not seem to be whether investors should buy or sell their AMZN shares. The conundrum is how much of Amazon’s streams of revenues are able to support its e-commerce segments during these inflationary times? And how does this translate to the company’s valuation?

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)