While growth stocks have rallied a bit this year, they still have a ways to go to recover their earlier highs. The tech-heavy Nasdaq Composite remains down 14% over the past 12 months -- and some stocks are faring far worse. Consider Amazon (AMZN -2.37%), for example. Shares of the once-mighty stock of the pandemic's early days are down 37% in the past 12 months.

But while Amazon faces near-term speed bumps, its long-term prospects look bright. Let's dig deeper to see why.

What went wrong for Amazon?

Amazon's fourth-quarter earnings highlight its current crop of challenges. While revenue grew by 9% to $149.2 billion, net income collapsed by a staggering 98% to just $278 million. The weakness was partly due to a $2.3 billion non-cash loss on Amazon's stake in floundering electric vehicle start-up Rivian Automotive.

But the bigger story is substantial margin erosion in the company's core businesses. During the height of the COVID-19 pandemic, Amazon over-expanded its e-commerce logistics network.

Growth hasn't lived up to expectations, resulting in overstaffing and lower efficiency. Inflation is another big problem because it increases the cost of doing business while lowering consumer purchasing power. Even Amazon's cloud segment faces problems as potential clients delay data migrations while existing clients switch to lower-cost service tiers to save money. 

Cost-cutting could save the bottom line 

The good news is that Amazon's problems look temporary and do not necessarily change its long-term thesis. The company is making an impressive effort to bring staffing levels back in line with business needs. In March, management cut 9,000 employees, adding to the 18,000 positions it cut last year. To put this in perspective, assuming each of these positions boasts an average annual salary of $100,000, this could total some $2.7 billion in cost savings going straight to the bottom line.

Amazon is also tying up loose ends through its operations. According to the online magazine Modern Retail, the company is using increasingly hardline negotiating tactics with its wholesale merchants, taking greater advantage of its scale and reach to maximize profits. It is also scaling back less profitable business ventures, such as its Amazon Go convenience stores, which are known for their cashier-free technology. 

Exciting new growth drivers 

But Amazon's focus on efficiency doesn't mean it is abandoning its pattern of seeking out new business opportunities. Last year, the company completed its $8.5 billion acquisition of the film studio MGM, followed by a pledge to invest $1 billion to release 12 movies annually in cinemas. And the company's push to become a bigger player in the $283.5 billion global film and video industry could be just getting started. 

Darts pinned to a dollar symbol.

Image source: Getty Images.

According to The Intersect, Amazon's founder Jeff Bezos (who now serves as executive chairman) is exploring potential acquisition plans for the distressed movie theater chain AMC Entertainment. With its network of almost 600 theaters, AMC could help Amazon market its films and collect consumer data from 200 million moviegoers. 

While some Wall Street analysts believe the deal is unlikely, it could be a sign that Amazon sees film production as a major growth driver going forward. It also highlights the adventurous management style that has made Amazon so successful over the last few decades. 

A great way to bet on a rebound 

The bear market priced a lot of bad news into Amazon's stock price. But this allows investors to buy shares at a discount and bet on a future bull market when challenges like inflation and rising rates fade. With its substantial cost-cutting efforts and pivots to new growth drivers, Amazon looks poised to emerge from these challenging times stronger than ever.