Amazon (AMZN 0.51%) is one of the best-performing stocks of the last generation, but its 2022 returns are a reminder that past performance isn't a guarantee of future returns. Shares of the tech giant are closing out the year down nearly 50% as it's faced a slew of challenges that have left it looking decidedly vulnerable.
The company is closing warehouses and laying off 10,000 corporate employees. It's shuttering once-promising businesses like Amazon Care and making cuts at Alexa after reports revealed that division is losing $10 billion a year. Additionally, revenue growth has slowed as the company has faced difficult comparisons with the pandemic boom in 2021, macro headwinds, and a shift in consumer spending.
On the bottom line, losses in its non-Amazon Web Services (AWS) segments have widened significantly. The company has even warned of slowing growth at AWS, its cloud infrastructure unit that is by far its biggest profit generator.
However, the tide may finally be turning for Amazon, at least according to one Wall Street analyst.
Image source: Amazon.
E-commerce is coming back
In a note last Monday, Wells Fargo's Brian Fitzgerald said that Amazon's e-commerce sales are beginning to reaccelerate as the company faces easier comparisons in softlines, which includes categories like apparel and housewares.
Fitzgerald also said that he saw growth in e-commerce and brick-and-mortar sales reverting to pre-COVID levels. For much of the last decade, e-commerce sales nationally grew by about 15%, according to the Census Bureau, so Fitzgerald seems to think it will get back there. This is better than Amazon's fourth-quarter guidance of 2%-8% revenue growth, which includes AWS.
Even after the pandemic boom, e-commerce sales still make up less than 15% of total retail, and while some categories like gasoline stations can't be done online, that figure still shows there is a lot of growth opportunity left for Amazon and its e-commerce peers.
Fitzgerald also pushed back on the narrative that Amazon was conceding market share but shutting down and canceling warehouses, saying that it has plans to leverage its capacity and go on offense with programs like Buy with Prime.
What it means for Amazon stock
Just as investors seem to have overestimated the e-commerce trend during the pandemic, they now appear to be doing the same in reverse, assuming the sluggish growth in e-commerce is here to say. In reality, the reason for the poor growth numbers at Amazon and peers like Shopify, Etsy, and Wayfair is due more to difficult comparisons, macro headwinds, and other temporary factors.
After falling nearly 50% over the last year, Amazon stock also looks exceptionally cheap based on the company's sales and its potential to deliver significantly better profits than it currently is. The stock now trades at a price-to-sales ratio of less than 2, the cheapest it's been on a sales basis since before it made AWS its own business segment, revealing how profitable the cloud infrastructure is.
If Fitzgerald is right about Amazon, the stock could take off as soon as Amazon's next earnings report, which is due out at the end of January. Investors would certainly cheer a better-than-expected holiday quarter and strong 2023 guidance.
But Fitzgerald doesn't have to be right about e-commerce trends in order for Amazon stock to bounce back. E-commerce growth will reaccelerate at some point, and Amazon and its peers will benefit. After falling nearly 50% this year, there's a lot of upside potential in the stock if its growth rate and profitability can improve.
