A tech sell-off in 2022 sent countless stocks tumbling as consumer spending in the industry slowed. Many tech and e-commerce stocks got hit, and Amazon (AMZN -1.14%) was among the worst with its stock falling 49.6% throughout the economically challenging year.
The chart above shows that the company suffered worse declines than just about all of its biggest competitors. Amazon's business was hit particularly hard by its position in e-commerce. While its online retail segments catapulted the company into a dominating position over the last few decades, macroeconomic headwinds were hard on the industry in 2022.
On a year-over-year basis, Amazon's stock remains down 39%. But the company's long-term outlook is still positive for investors looking for a growth stock to hold for many years. Amazon's stock dip makes now an excellent time to learn more about this tech giant. Here are three things about Amazon that smart investors know.
1. Amazon expects more declines in 2023
Inflation reached a 2022 high of 9.1% (annualized) last June, easing every month after that and settling at 6.4% in January. While consumer spending is up over the last few months in sectors like transportation, recreational goods, and restaurants, Amazon has not seen much of an improvement.
The company's e-commerce segments reported operating losses totaling $10.6 billion in 2022. Meanwhile, sales growth fell from typical year-over-year growth between 20% and 40% to 9.4% in the economically challenging year. The declines led Amazon's free cash flow to fall 187% since 2020, and it was at negative $16.9 billion as of January.
The slowdown in sales forced the company to take precautionary measures, such as layoffs of 18,000 employees, closing or stopping construction on dozens of warehouses, and sunsetting projects such as its telehealth service, Amazon Care. While these measures should help the bottom line, a looming recession might not see the company's e-commerce segments back on a growth path for at least another year.
2. Amazon Web Services is the company's most valuable asset
Amazon's cloud segment performance in 2022 illustrated the importance of having diverse revenue streams. Amazon Web Services pulled in $80 billion in revenue (a 28.7% increase) and contributed all of the company's $12.2 billion in operating income.
According to Grand View Research, the cloud market was valued at $484 billion in 2022, and it is projected to expand at a compound annual growth rate of 14.1% through 2030. As a result, Amazon's leading 34% market share in the industry should see the company profit for the long term as more businesses go online and other cloud-related sectors such as artificial intelligence expand.
3. A long-term perspective is crucial when considering Amazon
Despite Amazon's recent headwinds, its stock is up 24% over the last five years and 612% over the last decade. Meanwhile, annual revenue increased 189% since 2018 and stands at $514 billion. Operating income soared 198% in that time to now total $12.2 billion. The company's long-term growth remains impressive (even accounting for recent declines), making it one of the best stocks to hold for the long haul.
Amazon's e-commerce business may have more losses in the short term, but the industry is nowhere near hitting its ceiling. The company's leading 37.8% market share in the U.S. will likely pay off in a big way. Online sales made up 12.2% of worldwide retail sales in 2018, with that figure at 19.7% in 2022. By 2026, e-commerce is expected to make up 24% of all retail sales. The e-commerce market was worth $9.1 trillion in 2019 and is forecast to grow at a compound annual growth rate of 14.7% through 2027, with Amazon likely to profit significantly from the industry's development.
Amazon's stock trades at 77 times its earnings, making its current price look pretty expensive -- especially when competitors like Apple's price-to-earnings ratio is 25, Microsoft's is 28, and Alphabet's is 20. While there might be bettered-valued stocks out there, Amazon's average analyst 12-month price target of $137.86 is almost 48% higher than its current position, making it an incredibly compelling buy and one that could offer significant gains over the long term.
