The first quarter of 2022 was undoubtedly one for the books, but not in the way investors hoped. Valuation slashes were widespread following quarterly reports, many by double-digit percentages.
A hawkish Fed, margin compression, and geopolitical issues negatively impacted the quarterly results of nearly all companies. It goes without saying that we’ve found ourselves in a highly unique economic environment after coming out of a once-in-a-lifetime pandemic.
Nobody was safe, not even the e-commerce titan Amazon (
AMZN Quick Quote AMZN - Free Report) . Following its quarterly release, shares plummeted nearly 15%. It’s been a tough stretch in the market throughout 2022 for AMZN, as displayed in the chart below. Image Source: Zacks Investment Research
The story remains the same after widening the timeframe to encompass a year’s worth of price action. Amazon shares have struggled to stay on a healthy uptrend, with shares breaking off near late 2021.
Image Source: Zacks Investment Research
Additionally, it’s worth remembering that AMZN performed a 20-for-1 stock split in early June.
Amazon shares had become quite expensive, grinding down the overall trading volume and steering away potential investors. In an effort to boost liquidity within its shares, AMZN performed the split, and the initial announcement came at quite the surprise – Amazon hasn’t split its shares since 1999.
Nonetheless, it was a very positive move that investors welcomed with open arms.
Well off all-time highs and post-split, it raises a valid question – are AMZN shares worth scooping up now for long-term gains? Let’s examine the titan a little closer to get a more precise answer.
Now that valuation levels have been taken down a few levels, Amazon currently has a Style Score of a C for Value. The e-commerce titan’s forward price-to-sales ratio has come down to 2.1X, a fraction of its 4.8X high in 2020 and comfortably below its five-year median of 3.3X.
Additionally, the value represents an attractive 37% discount relative to the S&P 500’s forward P/S ratio of 3.7X.
Image Source: Zacks Investment Research Growth Estimates
For the upcoming quarter, the bottom line is forecasted to significantly decrease – the $0.14 per share estimate reflects a disheartening 81% decrease in earnings from the year-ago quarter. Of the six analysts that have revised their quarterly estimates over the last 60 days, four have lowered their outlook.
Furthermore, FY22 earnings are forecasted to shrink by a double-digit 83%, mainly attributed to the slowdown in e-commerce brought about by the re-opening of the world.
However, the earnings picture turns positive in FY23 – the $2.39 per share estimate represents a substantial triple-digit 350% growth in earnings year-over-year.
Image Source: Zacks Investment Research
Top-line estimates display strength. For the upcoming quarter, AMZN is pegged to rake in a mighty $119 billion, reflecting a respectable 6% expansion in the top line from year-ago quarterly sales of $113 billion.
Additionally, for FY22, AMZN is penciled in to surpass $520 billion in sales, a double-digit increase of 11.8% in the top line year-over-year. In FY23, the titan is forecasted to reap $611 billion in revenue, an additional double-digit growth in the top line of 16.5%.
Image Source: Zacks Investment Research Quarterly Performance
Amazon has primarily reported strong bottom line results, exceeding EPS estimates in seven of its last ten quarters and beating EPS estimates by an average of 140% over its previous four.
However, in its latest quarter, the company missed the Zacks Consensus Estimate of $0.44 by more than 52%, sending shares on a steep downwards trajectory.
In fact, shares have moved upwards just twice following the last seven quarterly reports.
Quarterly sales results have left much to be desired, with Amazon reporting quarterly revenue under expectations in each of its last four quarterly reports. The misses have been marginal, and none in excess of 1.75%, but still an essential factor and a development worth keeping tabs on.
Quarterly Revenue - Amazon Image Source: Zacks Investment Research Key Growth Driver
Amazon Web Services (AWS), Amazon’s cloud service, is the world’s most comprehensive and broadly adopted cloud platform. The service has millions of customers, including fast-growing startups, large enterprises, and leading government agencies.
With over 200 fully-featured services from data centers globally, AWS allows customers an effortless, faster, and more cost-effective experience than any other cloud provider. Additionally, AWS has the deepest functionality within its services, offering the widest variety of purpose-built databases for various applications.
It’s been the company’s fastest-growing source of revenue. From 2020 to 2021, net sales from AWS surged nearly 80%, raking in $62 billion compared to the previous figure of $35 billion. This line of business looks to remain rock-solid, with companies such as Meta Platforms (
META Quick Quote META - Free Report) and Best Buy ( BBY Quick Quote BBY - Free Report) recently selecting AWS as their preferred cloud provider.
Furthermore, Nasdaq has shared its multi-year partnership to migrate its markets onto AWS to become the world’s first fully enabled, cloud-based exchange – undoubtedly a major positive.
Amazon has been struggling in the recent term due to a re-opening of the world, supply chain issues, and increased labor costs, all of which have caused margin compression.
During the pandemic, the outside world was shut down, forcing many consumers to pivot to e-commerce to fulfill their needs. Additionally, consumers received stimulus checks, undoubtedly providing a boost to Amazon’s top line in the previous year and a half.
There are few doubts surrounding the e-commerce titan's future, and the split makes shares appear even more enticing. Aside from the recent bumps in the road, growth estimates for FY23 appear robust.
It would be beneficial for investors to slowly build themselves into a position at a favorable price point through dollar-cost averaging. Purchasing in periodic increments provides flexibility and helps limit overall risk.
AMZN is a Zacks Rank #3 (Hold) with an overall VGM Score of a C.