Why Did Amazon Stock Drop?
When you’re wondering why did Amazon stock drop, there are a number of factors to take into account. The company’s inability to reinvent itself has had a negative impact on its stock, but its financial outlook isn’t as bad as it might seem. In fact, pricing to sales is becoming more reasonable, and the company’s cash flow is better than it’s been in the past.
Amazon's inability to reinvent itself
The stock has slid by about 46%. This drop is attributed to the company’s inability to
find a way to reinvent itself. As a result, investors are paying the price. Amazon’s
new CEO is reportedly trying to turn around the struggling company, but it’s not
clear what exactly he plans to do.
The company has shown some willingness to invest in new industries, most notably
the audio business. It’s also got the tech to make local delivery a breeze. In early
2019, it launched Scout, a fleet of autonomous electric devices that can navigate
sidewalks and deliver select products to Prime customers.
Amazon has also shown some willingness to use the telecommunications industry’s
newest technology, the Internet of Things (IoT), to better serve its customers. One
example is a new automated system for sizing ripe and unripe produce. Using this
technology, an assembly line can automatically sort fruit and vegetables for
Another example is the Amazon Handmade store, which boasts the largest selection
of handcrafted goods on the Web. Founded in 2015, it competes with the $680
billion handcrafted goods market. Some of its best sellers include furniture, jewelry,
home decor, and accessories. Lastly, it has recently acquired PillPack, a digital
Despite its successes, Amazon still has a lot of room for improvement. To that end,
the company is reportedly exploring ways to take advantage of the healthcare
industry by building a nationwide network of pharmacies and pharmacies licenses. If
it can do this, it could be a real game changer for the ecommerce giant. A major
concern is the fact that consumers may not be willing to pay the costs for such
services, especially if it becomes difficult to track their health and wellness data.
Decline in cash flow
Amazon’s stock (AMZN) dropped 14.3% in a single day on April 28 following the release of its Q1 results. That’s the largest one-day decline since its peak in 2009. The company’s cash flow has been declining for several quarters, and the company
has had a negative free cash flow (FCF) in each of the past three years. AMZN’s growth in revenue has continued to outpace its growth in profits. It has seen the capital efficiency of its business decline in the past few years.
This has meant it has burned $26.3 billion of cash in the last year. In the first quarter, AMZN’s operating cash flow decreased 41 percent, and its net income fell by three times.
Free cash flow is an important measure of a business’s cash generation. The company’s free cash flow has been negative for three years, and analysts expect it to continue losing money. However, the company’s valuation implies it will see rapid growth. Amazon’s sales were up 7% in the first quarter. That’s near the high end of its
previous guidance. But the company also warned investors that its future is uncertain.
Analysts also noted that consumer shopping for discretionary goods slowed in early November. The cloud segment, which is a key driver of Amazon’s cash flow, saw an even bigger slowdown.
The stock still trades for less than its forward price-to-cash-flow ratio, which is lower than Microsoft’s ratio. However, analysts expect Amazon’s per-share cash flow to increase at a compound annual rate of 43.5% over the next four years. Analysts also believe that Amazon has a lot of value for long-term investors. Its target price is $125 to $127, and the stock is expected to have an upside of about 15%.
Layoffs fit a pattern
While the layoffs are a bummer, they haven’t exactly hurt AMZN stock. The stock is up almost a quarter on the year, a fact that isn’t likely to change anytime soon. Despite the cuts, Amazon has announced several big wins in recent months, including a major deal with Hawaiian Airlines and a partnership with Venmo. This all leads to the question, should Amazon continue to grow its headcount or cut costs? The company has been cutting back on its growth spending, including closing a telehealth service, a cloud gaming service, and all call centers. Nevertheless, the company has announced plans to lay off thousands of workers, including its largest division, Alexa. There are currently over 1.5 million full time employees at the helm of e-commerce giant.
While the company’s layoffs are certainly the apex of the company’s current state of affairs, the announcement didn’t exactly get a resounding response from Wall Street. In fact, the news did not even make it to the home page of the company’s website. Interestingly, the company’s Maryland headquarters claimed not to have laid off any workers. That means the company can’t say it, but it can’t deny it.
On the other hand, the company’s newfound frugality will most likely be a good thing for the company’s bottom line. It will also be a boon to consumers, who will benefit from lower prices on some of Amazon’s more popular items. To help make the transition easier, the company is making sure workers have a decent work/life balance, and is introducing perks such as flexible scheduling and a free monthly fitness program. As a bonus, Amazon will be providing its employees with free movie tickets from its Prime Video streaming service.
Amazon's outlook is not as gloomy as the market expects
Amazon’s latest financial report sent shockwaves through the investor community.
The company reported a profit in its third quarter, but growth fell far short of
analysts’ expectations. It also said that its consumer spending forecast was weaker
The e-commerce giant saw its stock plummet after the release of the report.
Investors expected the company to gain even more in the fourth quarter, but the
guidance was a big disappointment.
Amazon’s outlook is not as bleak as investors may think. However, a number of
macroeconomic issues could affect its performance in the short-term. One of these
is high inflation. Another is currency headwinds.
Amazon has been particularly vulnerable to the soaring cost of fuel. This has
increased the costs of transporting its goods to customers. Fortunately, its
warehouses have sufficient inventory levels to meet customer demand.
However, there are also challenges in the global supply chain. For example, the
Ukraine conflict is causing unusual problems for Amazon. Also, the economy in
Europe has slowed down.
As the economy recovers, consumers will be more likely to continue shopping with
Amazon. Moreover, the company will still deliver the best products to its customers.
Despite the challenges, Amazon’s revenue and profits are still increasing. In fact,
Amazon expects net sales in the fourth quarter to be $140 billion to $148 billion.
That’s a 4-12% year-over-year growth rate.
Despite the gloomy outlook, the e-commerce giant is still well-positioned for the
holiday season. Amazon’s flagship AWS division is still profitable, and its cloud
business is gaining traction. And its Prime Day deal event is generating a record
$4.6 billion this year.
During the dot-com boom, Amazon was one of the top winners of the internet
shopping craze. But it has been a tough year. Not only does Amazon face a global
macroeconomic environment that is slowing its growth, but it also has to contend
with rising interest rates.