Amazon Stock Price Down 18% in 2022– Time to Buy AMZN Stock?

Amazon stock (AMZN) is now down 18% in 2022 and is not far away from its 52-week lows. What’s the forecast for the stock and should you buy the dip in the e-commerce and cloud giant?

FAANG stocks have looked weak in 2022 amid the broader market sell-off. However, just like 2021, there is a lot of divergence in their price action. Facebook parent Meta Platforms has lost 44.3% so far while Netflix is not far with a 41% YTD decline. Apple is the best performer with a 10.2% fall while Alphabet stock has lost 12.6%.

FAANG stocks in 2021

Amazon was the worst-performing FAANG stock in 2021, where it gained just about 2.5%. Netflix was the second-worst with a gain of 11%. Meta Platforms gained 23% and along with AMZN and NFLX, underperformed the S&P 500. Apple was the second-best performing FAANG last year with gains of 34% while Alphabet led the pack with gains of 65%.

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Amazon stock recent developments

Amazon has announced that it would close 68 of its physical stores in the US and the UK. The company would continue with its grocery stores and Whole Food Stores. Physical retail accounts for a small chunk of Amazon’s earnings and in Q4 2021 only about 3% of its revenues were from physical stores.

AMZN stock soared after earnings

The divergence in FAANG stocks’ 2022 price action has been primarily due to the markets’ reaction to their earnings. Amazon stock had soared after its earnings, as did Apple and Alphabet.

Amazon reported revenues of $137.4 billion in Q4 2021, which were 9% higher than the corresponding period last year. The company’s sales fell slightly short of estimates. This was the third consecutive quarter where Amazon has missed sales estimates. Prior to that, the company posted better than expected revenues for three straight years.

However, Amazon’s AWS revenues came in at $17.8 billion in the quarter, which was higher than the $17.37 that analysts were expecting.

Amazon posted better than expected earnings

Amazon posted an adjusted EPS of $5.80 in the quarter which was way above the $3.57 that analysts were expecting. Notably, in its third-quarter earnings call, Amazon had warned that its operating profit in the fourth quarter might fall to as low as zero amid cost pressures. However, its actual performance was much better than what it had envisioned three months back.

Amazon expects its sales to be between $112-$117 billion in the first quarter of 2022, which is lower than the $120 billion that analysts were expecting. The company’s revenue guidance had disappointed in the third quarter as well. It expects its operating profits to be between $3-$6 billion in the first quarter.

Andy Jassy

Commenting on the earnings, Amazon CEO Andy Jassy said, “As expected over the holidays, we saw higher costs driven by labor supply shortages and inflationary pressures, and these issues persisted into the first quarter due to Omicron. Despite these short-term challenges, we continue to feel optimistic and excited about the business as we emerge from the pandemic.”

In the fourth quarter, it reported ad revenues of $9.7 billion which were 32% higher YoY. Commenting on the business, AMZN CFO Brian Olsavsky said, “We’re very happy with ad growth. It continues to drive value.”

As many were expecting, Amazon said that it would increase the price for its Prime subscription by $20 to $139. The cost for a monthly subscription would rise by $2 to $14.99. It was the first price hike for Prime service in four years.

Amazon stock forecast

Of the 52 analysts covering AMZN stock, 50 rate the stock as a buy while two rate it as a hold. None of the analysts have a sell or equivalent rating on the stock. Its median target price of $4,098 implies an upside of 49% over current prices.

Most Wall Street analysts are bullish on Amazon stock. Yesterday, JPMorgan reiterated AMZN as a top idea and said that the company should continue to gain market share. “We estimate Amazon increased its share of US e-comm from 39.2% in 2020 to 41.6% (+238bps) in 2021. While AMZN’s share of e-comm could dip slightly in 2022, we’d note that the company has gained ~600bps of share since the pandemic began,” it said in its note. Cowen, Bank of America, and Goldman Sachs also listed Amazon as their top pick for 2022.

Wolfe also reiterated its outperform rating on Amazon stock and said that it expects the company’s margins to expand in the second half of the year. Notably, Amazon spent billions of dollars towards COVID-19 related costs over the last two years. As these costs come down, the company should see an improvement in its earnings.

AMZN stock long term forecast

Amazon is not only an e-commerce platform but a complete ecosystem. The company has services like Prime which add to customer stickiness on the platform. Also, it is a play on the massive amount of user data that it has which it can use to show relevant products. There is also the network effect as the availability of wider choices on the platform acts as a competitive advantage and builds high barriers of entry. The company has built a strong moat with its ecosystem which is impeccable. It also has an underappreciated ad business that delivered strong results in the fourth quarter of 2021.

Along with the domestic markets, Amazon also allows users to buy products internationally. The company’s customer service is also a USP even as there would be the odd event of a buyer not being happy with the services. The complete ecosystem that AMZN has built is hard to replicate easily. For many people across the globe, Amazon and e-commerce are synonymous, just like internet browsing and Googling are used interchangeably.

Should you buy Amazon stock?

Amazon is a play on multiple secular growth themes including e-commerce, cloud, streaming, and digital advertising. Like many pandemic winners, it has also seen a slowdown in growth. However, if you want to play the e-commerce and cloud market, AMZN is one name that should be on your radar. The stock now trades at an NTM (next-12 months) PE multiple of 56x which looks quite attractive.

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