Stocks rise more often than they fall, but when they fall, they fall fast. This is why you've probably heard the adage "never try to catch a falling knife" bandied about recently on your favorite financial media outlets.
If the direction of their stock prices is all you know about different companies, then you're probably better off buying ones in an uptrend. It's also important to remember that stock markets sometimes push shares of great businesses down a lot further than they should.
Shares of Amazon.com (AMZN 1.84%), Netflix (NFLX 0.72%), and Zoom Video Communications (ZM 0.24%) have all fallen by more than one-third from their previous peaks. Here's why scraping some shares off the floor could do wonders for your portfolio in the years ahead.
Shares of this e-commerce giant recently had their worst day since 2006 in response to a first-quarter earnings call that was full of surprises. In addition to recording a $7.6 billion loss on its investment in electric vehicle maker Rivian, Amazon told investors to expect significantly less revenue this year than investment bank analysts had forecast.
Operating income in the first quarter fell to $3.7 billion from $8.9 billion a year. Rapidly expanding its network of warehouses to meet surging demand during COVID-related lockdowns is partly to blame. In typical Amazon fashion, the company's leveraging the investments it's making in logistics to expand its presence in another lucrative market.
Fulfillment by Amazon just got a lot more useful by rolling out a Buy with Prime button that direct-to-consumer businesses can add to their checkout pages. This allows merchants that already use Amazon's fulfillment service to delight over 200 million Prime members with access to fast and free Prime shipping.
Amazon's long-term investors can also take comfort in the strength of its cloud services segment. Even the invasion of Ukraine and subsequent sanctions that make it impossible to do business in Russia couldn't stop Amazon Web Services (AWS) from bounding forward. First-quarter operating income from AWS soared 57% year over year.
On-demand streaming has been beating the pants off of cable ever since this company popularized it. In recent years, though, Netflix has been caught off guard by the rapid rise of ad-supported competitors.
As you've probably heard, Netflix reported a quarter-to-quarter loss of subscribers during the last three months of 2021 and expects to lose millions more before the year is over. As a result, the stock is down 68% this year and it's trading at prices not seen since 2017.
In years past, Netflix's outspoken co-CEO Reed Hastings famously told everyone who would listen that Netflix was going to rely on subscription fees and remain ad-free. What Hastings hadn't accounted for was just how much advertisers are willing to spend. It turns out that showing well-targeted ads to specific groups of people can be a lot more lucrative than the traditional TV ads Hastings was thinking of at the time.
Before assuming Netflix can't compete in a world flooded with free ad-supported video-on-demand, there's one thing you need to remember. Netflix can, and most likely will, begin marketing a new subscription tier supported by targeted ads. With a deep well of original content, Netflix shouldn't have much trouble rekindling relationships with frugal viewers.
Zoom Video Communications
Shares of Zoom that traded above $400 last summer can be bought now for less than $100, thanks to the recurring theme you've probably picked up on by now. Fewer people spending nearly all their time at home is making it hard to meet expectations that were probably a little too high in the first place.
Pandemic-related lockdowns accelerated the transitions away from in-person meetings and appointments that were already underway. Unfortunately, forward momentum appears to have stalled out. During Zoom's fiscal fourth quarter ended on Jan. 31, 2022, income from operations fell to $252 million from $256 million a year earlier.
Smaller businesses that scrambled for solutions during the most severe COVID-related lockdowns have been canceling their Zoom subscriptions. Luckily, larger employers are also changing policies to retain skilled employees who know their jobs can be performed remotely. During Zoom's fiscal fourth quarter, the number of customers that spend more than $100,000 annually soared 66% year over year.
Enterprise customers could continue flocking to Zoom thanks to the recently launched Zoom Contact Center for companies that want to improve their customer engagement solutions. In April, the company also launched new security innovations and a collaborative whiteboard for hybrid teams.
Unlike its smaller competitors, Zoom has strong cash flows it can use to innovate and stay several steps ahead. Put it together and this stock looks like a screaming buy at recent prices.