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Why Amazon Stock Looks Weak: What Investors Should Know



Why Amazon Stock Looks Weak: What Investors Should Know

(CTN News) – Even Amazon Stock cloud business is struggling. (AMZN -7.69%) Amazon’s crown jewel looks tarnished. Cloud infrastructure juggernaut Amazon Web Services posted its slowest growth ever in the fourth quarter.

In Q4 2021, AWS revenue grew just 20%, down from 27% in the third quarter and 40% in Q4 2021. It’s not entirely surprising, since CFO Brian Olsavsky warned about headwinds in AWS on the third-quarter earnings call, and Q4 revenue guidance predicted just 2% to 8% growth in AWS.

Despite beating expectations, Amazon Stock Q4 revenue rose 9% to $149.2 billion. Earnings per share were $0.03, including a mark-to-market loss on its Rivian investment. $0.17 EPS was predicted by analysts.

Revenue growth in the first quarter was predicted at 4% to 8%.

In after-hours trading Thursday, Amazon Stock shares dropped 5% after disappointing earnings and guidance.

It’s like paradise gone wrong

Amazon Stock Web Services has been blowing Wall Street away with breakout growth and sky-high margins for years. Its revenue grew just 20% to $21.4 billion, and its operating income dropped 2% to $5.2 billion, its lowest profit since Q3 2021. Based on constant currency, AWS’s operating margin dropped to 24.3%, its lowest since 2017.

The first quarter growth for AWS will be even slower, just mid-teens. Due to macroeconomic challenges, AWS customers are optimizing costs.

AWS’s growth rate also lags behind Microsoft Azure and Alphabet’s Google Cloud, showing it’s losing market share. Revenue from Google Cloud was up 32% to $7.3 billion, while Microsoft’s Azure revenue was up 31%.

As AWS slows down, investors want better results from its e-commerce business, but that side is even more problematic. Despite Q4 being the strongest quarter for e-commerce, the non-AWS segments lost $2.5 billion in the quarter. Outside of AWS, it lost $10.6 billion.

Its management said it had doubled its fulfillment network in a couple of years and added the equivalent of UPS to delivery capabilities during the pandemic. As Amazon Stock has already acknowledged, it overextended during the pandemic due to its expectation that the pandemic demand trend would continue, which did not occur.

What’s Amazon Stock problem?

The company still enjoys several competitive advantages, including Prime loyalty, third-party marketplaces, logistics networks, and Amazon Web Services (AWS).

Despite laying off 18,000 corporate employees, the company has more work to do to reduce costs and drive profitable growth. Revenue was up just 9% in 2022, and operating income was $12.2 billion.

This kind of growth and profitability isn’t typical for a company valued at over $1 trillion, or nearly 100 times operating income.

The stock is likely to hit a ceiling until the economy improves, especially after shares rallied 40% in just a few weeks leading up to the report.

Amazon’s fundamentals look weaker than they have in a long time with AWS growth stalling and e-commerce losing billions each quarter. As long as the business continues to stagnate, Amazon Stock should be given the benefit of the doubt.


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