Amazon’s 30% drop signals the end of the e-commerce boom

  • Amazon (NASDAQ:) sales rose only 7% in the first quarter, compared to a 44% increase in the same period a year ago;
  • Despite setbacks on the earnings front, most Wall Street analysts remain optimistic about the company’s long-term prospects;
  • Bank of America announces “significant” profit margin growth from 2023 to 2025;
  • For data and content tools to help you make better investing decisions, try InvestingPro+

E-commerce, one of the most secure sectors of the digital economy to date, is starting to show signs of weakness after two years of strong growth.

The world’s largest online retailer, Amazon.com (NASDAQ6435 | AMZN), grew just 7% in the first quarter of 2022, compared to 44% a year ago. This represents the slowest growth rate for a Seattle-based company since the dot-com crash in 2001 and the second straight period of single-digit growth.

A week later, the latest results from Ottawa-based Shopify (NYSE:) also disappointed investors. The buyers’ platform said earnings per share were well below analysts’ expectations. The company also presented weaker prospects for acquiring new professional customers in 2022, saying that the increase in the number of suppliers on its platform will be comparable to 2021.

These dismal earnings reports have led to a sell-off from these and other e-commerce players, suggesting investors aren’t seeing a rebound in this segment any time soon.

Since Amazon reported results on April 28, shares have fallen more than 14% to close at $2,295.45 on Friday, the lowest level in about two years. Since the start of 2022, stocks are down more than 30%.

The massive spike in e-tailer stock prices seen at the height of the COVID-19 lockdown in 2020 is coming to an end quickly, with major online retailers facing multiple challenges, including inflation approaching a 40-year high and rising prices. rising labor costs, problems in global supply chains and a pandemic.

It will be difficult to reverse the trend

To offset some of these losses, Amazon earlier this month introduced a 5% fee for some of its US sellers, for the first time in its history; and last quarter, Amazon raised the price of its US Prime subscription to $139 for the first time in four years. from $119

Despite these actions, Amazon management sees no prospect of a rapid reversal of the negative trend. CEO Andy Jassy said in a statement accompanying the release of the latest results:

“It may take some time, particularly as we work under constant inflationary pressures and address supply chain challenges, but we are seeing encouraging progress in many dimensions of the customer experience, including delivery speed, which is now approaching levels immediately preceding the pandemic.” at the beginning of 2020″.

Despite the setback on the earnings front, most Wall Street analysts remain optimistic about the company’s long-term prospects and its leadership in e-commerce. While some have revised their target prices due to the drop in selling, many believe that any lingering weakness offers a good buying opportunity.

Of 56 analysts polled by Investing.com, 52 had a “buy” recommendation for AMZN because the stock would be “above the market.”

AMZN analyst consensus

Source: Investing.com

Among those surveyed, the 12-month average target price was $3,676.75, representing a stock price increase of 60.18%.

Amazon Web Services, the company’s cloud services division, is one area where the company continues to impress. It is she who currently generates the bulk of the company’s profits. AWS reported a 37% increase in revenue to $18.4 billion. Indeed, the sum of commitments customers made to future AWS purchases increased 68% year over year to $88.9 billion.

Bank of America, reducing target price from $4,225 to $3,770, in post-release memo, says cost pressures should be manageable, and Amazon will see significant increases in profit margins in 2023-25 on the cloud, advertising and third-party market.

Cowen & Co. analysts think Amazon has a lot of pricing power when it comes to Prime. They note that a further increase in the membership fee could offset AMZN’s losses in the e-commerce segment.

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Amazon will struggle to grow its e-commerce business in the current inflationary environment, which in the near term will significantly weaken the company’s stock price. That said, analysts are nearly unanimous that the company’s dominance in many areas of the digital economy is not in jeopardy and that investors should see this period of weakness as a buying opportunity.

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