With just a few days left in the year, Amazon (AMZN 0.78%) stock is on track for its worst performance in more than 20 years. The tech giant has faced a range of headwinds as the economy has soured, hitting pandemic winners like Amazon hard.

Revenue growth has slowed sharply. Profits have shrunk. The company has taken several different steps to reel in its costs, including closing or canceling dozens of warehouses, laying off 10,000 corporate employees, and shuttering new businesses like Amazon Care, its healthcare start-up, and Scout, its home delivery robot.

It's also pulling back spending on Alexa after Business Insider reported that the voice-activated technology division is losing $10 billion a year.

Even the company's vaunted reputation for customer satisfaction is showing cracks; its score on the American Customer Satisfaction Index fell to its lowest point since the index started tracking Amazon in 2000.

However, with the stock down 50% this year and hitting another 52-week low, it's worth asking if Amazon stock can bounce back in 2023.

A woman holding a credit card on shopping online.

Image source: Amazon.

A company in transition

For years, Amazon has earned the benefit of the doubt from investors, who bid the stock higher as it consistently sacrificed profit to grow the top line and gain market share.

However, that mutually beneficial understanding seems to have come to an end. Amazon stock has gotten cut in half this year as revenue growth has nearly ground to a halt. The company forecast top-line growth of just 2%-8% in the fourth quarter, and Amazon has reported massive losses in its e-commerce division of more than $8 billion through the first three quarters of the year.

In order for the stock to recover in 2023, Amazon will have to do one of two things. It will have to either reaccelerate its revenue growth or improve its bottom line. With Amazon's revenue expected to top $500 billion this year, delivering high revenue growth will become more difficult.

At its current level, Amazon would have to find an additional $100 billion in revenue just to grow its top line by 20%, a level it's historically exceeded in most years. That's going to be a challenge now for Amazon, given its size, especially with the macroeconomic challenges it's facing going into 2023.

That's why the company seems to be focused on improving the bottom line. Management hasn't given investors specifics on the impact of its cost-cutting plans for 2023, but they could be significant as the company appears to have a lot of wasteful spending to cut.

The valuation question

Amazon is a difficult company to value for a number of reasons. Its business model is complicated, spanning e-commerce, cloud computing, advertising, and other verticals. The company has no true peers, and historically, investors have believed that it could be more profitable than it is.

According to some metrics, Amazon stock looks cheap. On a price-to-sales basis, the stock trades at a multiple of 1.7, the cheapest it's been since 2014 before it broke out AWS as a separate business segment, showing how profitable it was.

Analysts also expect earnings per share to improve to $1.64, giving the company a forward price-to-earnings ratio of 50, which seems reasonable considering the company's ability to ramp up profits by cutting costs and growing its high-margin businesses like Amazon Web Services, its third-party marketplace, and advertising.

Will Amazon recover in 2023?

Whether Amazon stock bounces back next year will depend greatly on the macroeconomic climate as the company's e-commerce and cloud computing businesses are sensitive to the business cycle.

Amazon's stock fell after the most recent interest rate hike from the Federal Reserve and could continue to respond similarly to further action from the Fed.

However, the company also has some control over its own destiny. If Amazon can bring down its costs, show solid profit growth next year, and continue to increase the top line, the stock should be rewarded.

Market sentiment toward Amazon seems to be near an all-time low, but this is still a company with significant competitive advantages and a number of dominant businesses. With some recognizable improvements, that sentiment should shift.