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For a very long time, it seemed Amazon (AMZN -0.79%) could do no wrong. In fact, in the decade leading up to Nov. 2021, the company grew revenue by 850%, driving its stock up by more than 1,500%. Then, a perfect storm rolled in. Amazon’s lockdown-fueled growth spurt gave way to tough comps, slowing online retail growth, and the worst bear market in more than a decade. As a result, the stock has lost half its value in 52 weeks, plunging 54% from its peak in late 2021.
Yet, despite all the negativity baked into the stock price, I foresee good times ahead for the digital king. Here are three predictions about what to expect from Amazon in 2023.
Image source: Getty Images.
Like many companies in the digital retail business, Amazon spent 2022 suffering from a pandemic-related hangover. Shoppers on lockdowns in 2020 and 2021 turned to e-commerce en masse during the early days of COVID-19, but the massive pull-forward of business was eventually overpowered by reversion to the mean, which weighed on growth last year.
The pendulum has begun to swing the other way, according to Wells Fargo analyst Brian Fitzgerald. The trajectories of brick-and-mortar and e-commerce are beginning to normalize, according to the analyst, and we’re beginning to round the corner in terms of growth. This suggests that e-commerce and physical store sales rates are beginning to revert to pre-COVID levels.
The Black Friday weekend may have shown the first green shoots of this renewed growth. Amazon said that during the five shopping days between Thanksgiving and Cyber Monday — which it calls the “Turkey 5” — Amazon had its biggest holiday shopping weekend ever. In typical Amazon fashion, the press release didn’t provide any actual numbers, instead saying, “This was a record-breaking holiday shopping weekend for Amazon.”
This seems to suggest that we may have hit the bottom of the trough for e-commerce growth — which is good news for Amazon.
Over the past several years, Amazon has been encroaching further into the field of healthcare — and we should expect more of that in 2023.
Amazon raised eyebrows in 2018 with the acquisition of PillPack for roughly $1 billion. The online pharmacy and delivery service not only fills prescriptions but also puts them into convenient packets labeled with the date, time, and dosages. The company was eventually rebranded as Amazon Pharmacy, the first notch on the company’s medical tool belt.
Amazon made another big splash last year with plans to acquire One Medical for $3.9 billion. The primary care start-up serves nearly 800,000 people in 16 markets, providing a combination of digital and office-based care. Patients can message providers, book appointments, refill a prescription, or video chat with a doctor, all from within the app.
However, not all of its plans have come to fruition, as evidenced by the dissolving of Haven, the joint venture it created in collaboration with Berkshire Hathaway and JPMorgan Chase. It also recently shuttered Amazon Care, the company’s ambitious primary care experiment, which offered both telehealth and in-office services.
What is clear is that Amazon has designs in the healthcare space, and if its recent moves are any indication, while we don’t know exactly how it will play out, we can expect the company to move further into healthcare in 2023.
Amazon pioneered the modern cloud computing business with the debut of Amazon Web Services (AWS), and nearly 17 years on, it’s still the undisputed leader — and by a fair margin. AWS controls roughly 32% of the cloud infrastructure services market, followed by Microsoft Azure and Alphabet‘s Google Cloud, with 22% and 9%, respectively, according to Canalys.
Furthermore, digital transformation has more companies moving data, systems, and applications to the cloud. The infrastructure-as-a-service (IaaS) market has been growing by leaps and bounds, reaching $66 billion in 2021 and is expected to climb to more than $279 billion by 2027. These secular tailwinds will help fuel Amazon’s cloud growth, helping the company maintain its industry-leading position in 2023.
As I mentioned at the onset, Amazon stock has fallen roughly 54% from its high reached in late 2021. At the same time, the company has continued to grow, albeit at a more moderate pace. Furthermore, the company’s valuation is low by historical standards. At roughly 1.5 times sales, Amazon’s price-to-sales ratio hasn’t been this low in about eight years.
Given Amazon’s bargain-basement price and industry-leading positions in both cloud computing and e-commerce, I’m not really going out on a limb saying its stock price will recover in 2023.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Danny Vena has positions in Alphabet, Amazon.com, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Berkshire Hathaway, JPMorgan Chase, and Microsoft. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, short January 2023 $200 puts on Berkshire Hathaway, and short January 2023 $265 calls on Berkshire Hathaway. The Motley Fool has a disclosure policy.
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