Be Patient With Amazon and It Will Make Your Year
InvestorPlace - Stock Market News, Stock Advice & Trading Tips AMZN stock might be down but it is not out. The e-commerce company's share price should rally in coming months...
Amazon (NASDAQ:AMZN) stock continues to slump even after the company's strong earnings report in early February, leaving shareholders frustrated and wondering what it will take to get the e-commerce giant's share price moving higher once again.
AMZN stock was basically stagnant in 2021, doing nothing much at all throughout the year. Shareholders who were hoping that the stock would begin recovering with the start of this year have been disappointed as Amazon's share price has slumped nearly 7% so far in 2022.
The decline comes even after the Seattle-based online retailer reported better-than-expected fourth quarter results. While many Wall Street analysts remain bullish on Amazon and continue to raise their price targets on the stock, the ongoing slump has left retail investors feeling dejected.
Amazon seemed to hit all the right notes with its fourth quarter print. The company announced earnings per share of $5.80 compared to $3.57 that Wall Street had expected, according to Refinitiv data. Revenue in the quarter amounted to $137.4 billion versus $137.6 billion that had been expected. Revenue from Amazon's key cloud computing unit came in at $17.8 billion, beating analyst expectations for $17.37 billion.
The company also reported that it earned nearly $12 billion from its investment in electric vehicle company Rivian (NASDAQ:RIVN) during the quarter. And Amazon disclosed revenue from its advertising business for the first time. Advertising services grew an annualized 32% to $9.7 billion during Q4. Previously, Amazon lumped its advertising revenue in with its "other" business category.
AMZN stock jumped 14% immediately after the fourth quarter earnings were made public, and all seemed to be right with the world. However, the gains were short-lived and Amazon stock has again fallen backwards. The company's shares are now 18% below their 52-week high of $3,773.08 reached last July just prior to the company undergoing its first CEO change when Andy Jassy replaced company founder Jeff Bezos at the helm.
While some of the decline in Amazon's share price can be attributed to broader market volatility, particularly among large cap technology concerns, the company's stock has been in a funk since the leadership change and amid questions about Amazon's future direction.
Amazon is facing some considerable challenges right now. These include consumer prices at a 40-year high, ongoing global supply chain problems, wage inflation and difficulty hiring and retaining workers. Amazon spotlighted many of these problems when releasing its fourth quarter results, and noted that they impacted the company's guidance for the current first quarter.
Amazon guided that it expects Q1 revenue of between $112 billion and $117 billion, which is below the average estimate of $120 billion that Wall Street had been looking for. "Despite these short-term challenges, we continue to feel optimistic and excited about the business as we emerge from the pandemic," Jassy said in Amazon's earnings statement.
In response to the tight labor market, Amazon last year raised its workers' wages to an average of $18 an hour and also offered signing bonuses of as much as $3,000. The company also more than doubled the maximum base salary it provides to corporate employees to $350,000 a year, up from $160,000 previously.
Additionally, Amazon has hiked the price of its Prime membership for the first time in four years. The company said it will raise the price of its annual Prime membership to $139 from $119, with the change going into effect for current members at the end of March.
Amazon's disappointing forward guidance, combined with the ongoing problems its experiencing with inflation, supply chains and employee retention, are the most likely reasons why AMZN stock has retrenched following its earnings report. However, despite the current slump, many analysts say it's only a matter of time before the shares breakout.
Bank of America (NYSE:BAC) recently reiterated its "buy" rating on Amazon stock, noting strength in the company's cloud computing and advertising businesses, and that Amazon recently launched its highly anticipated telehealth business throughout the U.S. Among 52 analysts who cover Amazon, the median price target on the stock is currently $4,100.00, which would be 32% higher than where the stock currently trades.
Take the Long View With AMZN Stock
Amazon shareholders have had to be patient over the last year. And while the company's stock has not yet reversed course, anticipation is running high that a breakout is imminent.
While problems persist for the world's biggest e-commerce company, they are not unique to Amazon and will subside as we progress through this year and beyond.
Given the sheer size and scope of Amazon's worldwide business, and the influence the company's stock has on the broader market, it deserves a place in most investor portfolios. Continue to be patient and wait out the current downturn. AMZN stock is a long-term buy.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
More From InvestorPlace
- Stock Prodigy Who Found NIO at $2… Says Buy THIS Now
- Man Who Called Black Monday: "Prepare Now."
- Get in Now on Tiny $3 "Forever Battery' Stock
- Interested in Crypto? Read This First...
Entrepreneur Editors' Picks
Tory Burch Built a Brand Around Empowering Women. Now Her Foundation Is Furthering Her Mission: 'How Do We as a Company Have a Positive Impact on Humanity?'
This Founder Had to Play College Basketball in Men's Shorts and Shoes, So She Launched an Athletic Clothing Company Named After the Now 50-Year-Old Title IX Act
Is Beyoncé's 'Break My Soul' the Theme Song of the Great Resignation?
You're Probably Falling for All of Amazon Prime Day's Psychological Sales Tactics. A Marketing Professor Reveals Them — and How You Can Actually Get the Best Deal.
Comedian Paul Virzi: 'If You're Not Authentic, You Have Nothing'
Struggling to Come Up With Creative Ideas? Try Doing This.
Picking a Winning Emerging Brand Is How You Get Rich in Franchising. Here's How to Spot One.