Not long ago, Amazon (AMZN -2.56%) looked unstoppable.

Revenue surged through the pandemic; it was more profitable than ever, and even its investment in Rivian looked brilliant when the EV company IPO'ed with a valuation that briefly topped $100 billion.

A year later, that momentum has vanished, and Amazon is in disarray. Revenue is expected to slow to just single digits in the key holiday quarter. Excluding Amazon Web Services, the tech giant has lost more than $8 billion through the first three quarters of the year. It announced its first major round of layoffs, dismissing 10,000 corporate employees. It's shut down once-promising new businesses like Amazon Care, its healthcare start-up, and closed or canceled dozens of new warehouses. Media reports have also revealed that Alexa, once seen as one of the company's brightest prospects, is losing a whopping $10 billion a year. Even Amazon Prime's two-day shipping promise increasingly seems like a farce as complaints on social media of Prime-marked items taking several days or even weeks to arrive have become common.

Amazon stock is now down nearly 50% year to date and recently touched another 52-week low. Fears of a recession are swirling through the market again after the Federal Reserve's latest rate hike and forecast for more increases next year.  

Remarkably, Amazon stock is even cheaper than it was before the pandemic, but investors who see this as a buying opportunity should be aware that the stock can still go lower. Here's why.

An Amazon worker packs a box.

Image source: Amazon.

The business is cyclical

Amazon may have a number of strengths, but being recession-proof isn't one of them. The company's two major businesses, e-commerce and cloud computing, are both sensitive to the broader economy, and so are most of its other key businesses, like advertising.

The company dominates e-commerce, but most of what's sold on its platform are discretionary items  that consumers can do without in tough times. Amazon has long struggled to gain traction in consumer staples products like food and paper goods, whose sales are generally unaffected by the overall economy.

AWS is also sensitive to a potential recession, as the company relies on business demand for its cloud infrastructure services. If businesses aren't expanding or are reluctant to spend more money, that's going to impact AWS. On the third-quarter earnings call, CFO Brian Olsavsky acknowledged those headwinds, saying, "With the ongoing macroeconomic uncertainties, we've seen an uptick in AWS customers focused on controlling costs." 

Amazon stock has fallen another 7% since the Fed's rate decision last Wednesday on increased fears of a recession, which could foreshadow further losses if the economy continues to weaken into 2023.

The strategy seems unclear

Under founder and longtime CEO Jeff Bezos, investors accepted a trade-off with Amazon stock. Bezos, who preached long-term thinking, asked investors to forego current profits in exchange for market share gains and revenue growth, and for years, that strategy delivered great results.

However, under new CEO Andy Jassy, who took over last July, that arrangement seems to have fallen apart. Amazon's growth has slowed dramatically, and its profits are also shrinking. The company no longer seems in control of its own destiny as it previously did, and growth has gotten more difficult due to the law of large numbers as Amazon's revenue is set to top $500 billion.

That's not necessarily Jassy's fault. He doesn't have control over the broader economy, nor is he responsible for the investments the company made before he took the top job. But Jassy has missed opportunities to explain his vision for the company to investors. Notably, Jassy doesn't participate in earnings calls, which is when CEOs typically outline their strategy and field questions from analysts. Bezos didn't do earnings calls either, but he earned that privilege after years of running the company. 

Jassy doesn't have the same level of credibility with the market, and with the stock cut in half this year, investors deserve some answers as to what he plans to do to repair the business and what his long-term strategy is.

The good news

While the next several months for Amazon could bring more uncertainty, especially if the economy continues to slide, Amazon still looks well positioned over the long term, especially at the current price.

The company has a number of unique competitive advantages, with more than 200 million Prime members, its massive third-party marketplace and logistics operations, and its first-mover advantage in cloud infrastructure. That continues to pay off, as that segment is on track to generate around $23 billion in operating income this year. 

Currently, the stock trades at a price-to-sales ratio of less than 2, the cheapest it's been in eight years before it broke out AWS as its own segment, showing how profitable the cloud infrastructure division was.

Over the long term, buying Amazon stock today should pay off, but investors should expect volatility ahead, at least until the economy stabilizes. Even with the stock down 50%, Amazon shares could still go even lower.