Amazon (NASDAQ:AMZN) is an unassailable e-commerce leviathan – or at least, that’s what some financial traders may have assumed prior to the company’s just-released third-quarter 2022 earnings report. As it turns out, however, grand expectations can lead to deep disappointment – and Amazon’s investors just got a life lesson in exchange for a hefty chunk of shareholder value.
So, here’s the rundown. Amazon’s net revenue increased 15% year-over-year (YOY) to $127.1 billion, which is roughly in line with the analyst consensus estimate of $127.39 billion. Perhaps this would be adequate for any company besides Amazon, but with a company of this size and power, “good enough” just isn’t good enough for Wall Street.
Turning to the bottom-line results, Amazon’s net income of $2.9 billion, or $0.28 per diluted share, represents a decline compared to the $3.2 billion, or $0.31 per diluted share, reported in the year-earlier quarter. Amazon did beat the analyst consensus estimate of $2.16 billion, however.
Looking at the Bigger Picture
If you’re thinking that Amazon’s quarterly results weren’t too bad, try extending the look-back period and consider how far Amazon has fallen. During the nine months that ended September 30, 2021, Amazon’s net income slightly exceeded $19 billion. Fast-forward to the nine months that ended September 30, 2022, and the company reported a net loss of $3 billion.
What Amazon’s investors needed now was confirmation that the company would defeat the inflation and supply-chain disruptions headwinds. They wanted to know that everything would be all right in the U.S. economy – because after all, if Amazon is flailing, then the American economy is probably failing.
Is Amazon Stock a Buy?
Analysts had a positive view going into today’s earnings report, assigning Amazon a Strong Buy consensus rating based on 32 Buys, one Hold, and zero Sells assigned in the past three months. The average AMZN stock price target of $170.27 implies 53.24% upside potential. However, it’ll be interesting to see if this changes going forward.
Bloated Assets Like AMZN Stock Can Fall Far
Also, investors should consider that so-called “growth stocks” are being dumped in favor of value-focused assets during the current economic downturn. When the going gets tough, the market’s weighing machine gets turned on, and Amazon’s valuation was probably too heavy for the company’s own good.
Amazon’s trailing 12-month P/E ratio was around 99 recently and in the triple digits not too long ago. That’s after the stock market corrected, by the way. So, perhaps it was due time for a “reset” in AMZN stock.
That reset took place immediately after Amazon reported its less-than-stellar quarterly results. AMZN stock slumped 18% in post-market trading, and the company’s P/E ratio will probably need to be updated (or I should say, “down-dated”) soon. Whether that’s a good or bad thing is up to you to decide. If you were sitting on the sidelines and stayed out of the trade, though, just be glad that you sidestepped the mighty share-price fall of a company that was once invulnerable, but is now as vulnerable as it’s been in years.
