Last year was marred by spikes in inflation and interest rates, triggering a stock market sell-off for countless companies. Amazon (AMZN +0.39%) was one of the hardest hit, with its share price plunging 50% throughout 2022 as reductions in consumer spending proved detrimental to its retail profits.
However, the company made an impressive turnaround in 2023, bringing its e-commerce business back to profitability and rallying investors with an expanding position in artificial intelligence (AI). As a result, its stock has climbed more than 50% year to date.
Amazon posted its third quarter of 2023 earnings on Oct. 26, beating analyst expectations and delivering another boost to retail profits. The tech giant is on a promising growth trajectory, and it could be worth considering an investment in its stock right now.
So, here are two green flags for Amazon's future.
1. Amazon's management has put the company back on a growth path
Things looked dire for Amazon last year after it reported combined operating losses of $10.6 billion between its two e-commerce segments. Its saving grace during the challenging period was its cloud platform, Amazon Web Services (AWS), which kept the company profitable.
However, the company's performance in 2023 illustrates why it's critical to hold tech stocks over the long term and invest in businesses with strong leadership.
Amazon's management quickly reacted to 2022's economic downturn, going into cost-cutting mode. Over the last year, the company laid off thousands of employees, closed or canceled construction on dozens of warehouses, and shuttered various unprofitable projects. Restructuring moves put Amazon back on a growth path and allowed opportunities for revenue raises.
In Q3 2023, revenue jumped 13% year over year, with operating income increasing more than 300% to $11 billion. The biggest improvement came in Amazon's North American segment, which hit over $4 billion in operating income after posting losses of $412 million in the year-ago quarter. Meanwhile, earnings per share came to $0.94 and beat analyst forecasts of $0.58.
Amazon is an attractive growth stock, home to dominating positions in e-commerce and the cloud market. The company's management has proved its ability to accurately respond to macroeconomic headwinds, making its stock worth a long-term investment.
2. Outperforming Alphabet and Meta in digital advertising growth
Amazon is best known for its online retail site and cloud services with AWS. However, the company is gradually becoming a major player in digital advertising, often described as a sleeping giant in the market.
In Q3 2023, Amazon's ad revenue spiked 26% year over year, outperforming Alphabet's ad growth of 9% and Meta's 23%. Alphabet and Meta hold the two largest market shares in digital advertising. However, Amazon's expanding business gives it massive potential in the space, with CEO Andy Jassy saying in a recent earnings call that the company has "barely scraped the surface."
Amazon's streaming service, Prime Video, has bolstered its ad business with introductions such as the NFL's Thursday Night Football and the launch of cheaper ad-supported subscription tiers. In fact, Thursday Night Football saw a 25% rise in viewership in the first six games of this season. Meanwhile, the company has countless ad opportunities in its commerce and grocery businesses.
NASDAQ: AMZN
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Moreover, Jassy has said on the subject, "Most of our resources on the advertising side are in machine learning and creating algorithms," boosting efficiency with improved targeting.
Amazon is home to powerful tech, which has seen it gain a solid position in AI, another helpful tool in expanding its ad business. The company has used AI for years to track shopping trends and recommend products to consumers. However, its heavy investment in the industry this year could see it take leaps in AI, allowing the company to bring improvements across its business, including advertising.
Amazon's ad business has more than doubled in the last three years, posting more than $12 billion in revenue in Q3. The rapidly expanding business diversifies its earnings and position in tech, which is promising for the company's long-term future. Amazon has a strong outlook over the next few years, and you won't want to miss out on its growth potential.
