There’s still a lot to like about Amazon (AMZN) stock even after the company has had a tough year, Nick Jones, an analyst at JMP Securities Equity Research, recently told Yahoo Finance Live (video above).
Amazon had a tough 2022, with the company’s stock plummeting more than 40% for the year. Struggling with high inflation, soaring rates and a weak advertising market, the company recently announced it would increase the number of layoffs it is making among its corporate workforce from 10,000 to 18,000.
Despite this, Amazon is still moving in the right direction, according to Jones. “We like it when Amazon invests in future technologies, we like when they invest in growth,” he said. “For us, we don’t think it has to happen. We like the stock here today.”
The layoffs, Jones said, are not bad news for the company’s prospects.
“It’s a very small fraction of their workforce,” he said, given that Amazon’s total workforce is about 300,000 employees. “The way we see it, ‘You start looking at the bottom line.’ This is an area that investors are increasingly focusing on, they want Amazon to better report these numbers as each quarter goes by, and while we don’t think this will really make a difference, we like that they’re focusing on it and make cuts.”
Heading into fourth-quarter earnings, Amazon’s guidance was weak as the company said in October it expected sales of $140 billion to $148 billion by the end of the year, missing analysts’ expectations.
Despite all the turbulence the company is experiencing, Jones believes CEO Andy Jassy is playing his cards right, saying Jassy has been caught in the crossfire of a macroeconomic downturn.
“You can’t fight the Fed,” he said. “You can’t fight macros, and I think this is very much a Fed-driven macro market, and that really compresses multiples … more than anything that’s idiosyncratic to what Jassy does at the company.”
The story goes on
Jassy, who took the helm at Amazon in 2021, spoke about the company’s layoff plans in a statement earlier this month.
“Amazon has a history of weathering uncertain and difficult economies, and we will continue to do so,” Jassy wrote on Jan. 4. “These changes will help us pursue our long-term opportunities with a stronger cost structure. I’m also optimistic that unless we hire at scale and shed some roles, we’ll be inventive, imaginative and fragmented during this time. Companies that exist for a long time go through different phases. They’re not always in expansion mode for many employees each year.”
Boxes ready for delivery are seen on Cyber Monday at the Amazon fulfillment center in Robbinsville Township in New Jersey, the United States, November 28, 2022. Portal/Eduardo Munoz
“Definitely still an AWS story”
So what does Jones think Amazon will go from here? The key to a successful 2023 for Amazon is that the company’s retail business picks up some traction while booming cloud unit Amazon Web Services (AWS) fuels the company’s growth.
“It’s definitely still an AWS story,” Jones said. “I mean, we still want retail to work. I think advertising is underrated, but in the face of a recession, it’s hard to like advertising until 2023. So we really need to see AWS pick up steam again. We need to see estimates from the retail segment go up.”
The truth is, the macro needs to even out before we know what Amazon’s next moves will be.
“We need to bottom out on estimates and get more insight into the macro situation,” Jones said. “Will the Fed continue to raise rates and by how much? I think once we get some insight into the cost of capital, where rates are going, investors can start to lift their heads and think about what the back half of ’23 and ’24 looks like.”
Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agafinks.
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