Percentages can be deceiving. While a decline of 8% isn't a disaster, when we're talking about a company that's worth well over $1 trillion on the stock market, it amounts to tens of billions of dollars in lost value. That happened to Amazon (AMZN 0.78%) during the week of Sept. 18 as it dealt with several headwinds.
First, investors responded negatively to the company's announced hiring spree for the holiday season and increased hourly wages. Second, it still has troubles related to the U.S. Federal Trade Commission's (FTC) claims of antitrust practices.
Third, some analysts seem bearish on the tech-giant's near-term prospects. What should investors do amid all these headlines?
Amazon is making moves
Also hot off the press is Amazon's recently announced decision to include ads on Prime Video starting in early 2024 for some of its largest markets, including the U.S., the U.K., Germany, and Canada. It plans to do so in several other countries later that year.
Including ads has recently become popular among streaming platforms as a way to generate added revenue to fund the expensive content viewers want to watch. However, Amazon promised "meaningfully fewer ads" than Prime Video competitors and linear television.
How will this move pan out? On the one hand, it could help expand Amazon's advertising business, which is one of its main sources of revenue. On the other hand, some may be worried that the company will chase away viewers who don't want their shows interrupted by advertisements.
Amazon will include an ad-free tier for an extra $2.99 per month. At any rate, subscribers will have to choose between one of those two options wherever they go -- at least if they want top-quality content. In my view, this new initiative won't hurt Amazon very much (if at all), while adding another source of revenue for the company.
The broader picture
Amazon ended 2022 with just under 169 million Prime members in the U.S. That hardly reflects the broad range of the company's reach.
Amazon's website is one of the most visited in the world. Its brand name inspires loyalty, trust, and a deep commitment to customer service. Getting to such a level is difficult, but that's precisely what Amazon has done in the past two decades. With an army of loyal customers, it can continue growing its revenue and profits by finding more ways to monetize its deep ecosystem.
That's what it has done with this new initiative, but investors can rest assured that it won't be the last one. Amazon's greatest strength comes from its ability to pursue lucrative opportunities such as e-commerce and cloud computing, both of which still have miles of growth left ahead.
That's to say nothing of the company's push into artificial intelligence, another exciting market where it could dominate. But what about its recent issues?
The outcome of Amazon's legal troubles related to the FTC's claims is still impossible to predict. In the worst-case scenario, Amazon will get broken up into smaller companies, but that seems somewhat unlikely.
Corporations of this size deal with lawsuits constantly, albeit not necessarily from an agency as powerful as the FTC. Still, more often than not, it's easier and cheaper to settle these lawsuits.
Whatever the case, expect Amazon to do its best to minimize the potential risks and losses. Regarding the company's announced hiring spree, it's true that it represents a reversal of what it did over the past 18 months or so as it dealt with inflation and other issues. Amazon's decision to take on 250,000 full-time and part-time workers now may signal near-term optimism.
The holiday season is coming in the fourth quarter. Even if the company falls short of expectations and the hiring spree turns out to be a net negative on the bottom line, it will do little to affect Amazon's fundamental investment thesis.
Overall, the company has too much going its way. Investors looking at the next five years and beyond should see past the noise and look at Amazon's recent drop as a buying opportunity.
