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At Amazon ( NASDAQ:AMZN ) stock price has fallen nearly 45% over the past 12 months. It is now down 52% from its all-time high, reaching July 2021, when the company had a market cap of $1.9trn.
Amazon now has the dubious honor of being the first public company to lose $1trn in value.
Is this market correction the right time to add stocks to your long-term portfolio?
Top line
Amazon’s third quarter results for 2022 show that it continues to be successful in increasing its revenue. Net sales for the three months to September 30 were 15% higher than the same period in 2021.
The company’s sales in the quarter equaled $16 for every person on the planet!
Revenue in North America rose by 20% and, excluding the impact of foreign exchange movements, sales outside this region increased by 12%.
The biggest success came from the Amazon Wholesale Services (AWS) division, with an increase in sales revenue of $20.5bn (28%). However, this is the slowest growth rate since AWS’s results started separately.
It’s clear that the company is good at increasing its top line. But, what about profit?
Bottom line
Operating income for the third quarter was $ 2.5 billion, compared to $ 4.9 billion for Q3 in 2021. In the absence of AWS, Amazon will create operations. loss of $2.9bn.
Worryingly for existing investors, there appears to be a downward trend in net income. Amazon has recorded losses for the last two to three quarters.
The annual profit is $11.6bn in 2019, $21.3bn in 2020, and $33.4bn in 2021. However, in the first nine months of 2022, the company lost $3bn.
| a quarter | Net income/(loss) ($m) |
| Q1 2019 | 3,561 |
| Q2 2019 | 2,625 |
| Q3 2019 | 2.134 |
| Q4 2019 | 3,268 |
| Q1 2020 | 2,535 |
| Q2 2020 | 5,243 |
| Q3 2020 | 6,331 |
| Q4 2020 | 7,222 |
| Q1 2021 | 8,107 |
| Q2 2021 | 7,778 |
| Q3 2021 | 3.156 |
| Q4 2021 | 14,323 |
| Q1 2022 | (3,844) |
| Q2 2022 | (2,028) |
| Q3 2022 | 2,872 |
The company’s directors estimated net income between $nil and $4bn in the fourth quarter. Even at the higher end of this range, Amazon is barely profitable by 2022.
What should I do?
Restoring profitability will be difficult in the current economic climate.
Future growth will come from AWS, a cloud platform that allows businesses to avoid investing in their own servers. Recurring income is earned through subscriptions.
According to MarketsandMarkets, the global cloud computing market will be worth $1.24trn by 2027. If true, this will represent a 125% increase from its current size. At the moment, Amazon has a third part of this market.
Amazon is fundamentally a good company, but it’s clear that the threat of inflation, rising interest rates, and recession are affecting profits. I think the stock price will continue to remain under pressure in the coming months, as earnings continue to disappoint.
That’s why I’m not going to invest at the moment, but will take another look at the company later in the year.
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