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Amazon (AMZN 1.49%) became a trillion-dollar company in September 2018, and its market cap hit a peak of $1.9 trillion in July 2021. But as of this writing, the e-commerce and cloud giant is only worth about $850 billion. Let’s see why Amazon lost its luster, where it might be headed throughout 2023, and if it can rejoin the 12-zero club by the beginning of 2024.
Amazon’s stock soared in the years leading up to 2021 as it dazzled investors with the robust growth of its online marketplace and Amazon Web Services (AWS) cloud infrastructure platform. Both businesses also fired on all cylinders during the pandemic as more people shopped online and accessed more cloud-based services.
Image source: Amazon.
The bullish stampede toward growth stocks throughout 2020 and 2021 — which was partly driven by the rise of smaller retail investors and a surplus of cash from stimulus checks — then propelled Amazon’s stock to its historic highs. But in 2022, those tailwinds dissipated as inflation curbed consumer spending, macro headwinds forced companies to rein in their cloud spending, and rising interest rates drove investors away from higher-growth tech stocks.
As Amazon’s growth cooled off, it ramped up its spending on the expansion of its loss-leading digital media services. That combination of slowing growth and rising costs made Amazon an unappealing investment as the bear market dragged on.
To understand where Amazon might be headed in 2023, we should glance back at its growth in 2021 and its subsequent slowdown throughout the first nine months of 2022.
Metric
2021
Q1-Q3 of 2022
North America Revenue Growth (YOY)
18%
13%
International Revenue Growth (YOY)
22%
(8%)
AWS Revenue Growth (YOY)
37%
32%
Total Revenue Growth (YOY)
22%
10%
Data source: Amazon. YOY = Year over year.
In 2022, Amazon’s North American and International segments faced a tough post-pandemic slowdown, which was exacerbated by inflationary headwinds and supply chain disruptions in Asia. AWS remains the largest cloud infrastructure platform in the world, but it’s growing at a slower rate than its closest competitors, Microsoft‘s Azure and Alphabet‘s Google Cloud.
The North American and International segments also posted negative operating margins in the first nine months of 2022 as their logistics and expenses costs rose, which offset AWS’ positive operating margins and caused the entire company to turn unprofitable with a net loss of $3 billion — compared to a net profit of $19 billion in the first nine months of 2021.
In 2022, analysts expect Amazon’s revenue to rise 9% to $510.5 billion as its bottom line slips to a net loss of $918 million. But in 2023, they expect its revenue to rise 10% to $562.2 billion with a net profit of $17.6 billion.
We should take those estimates with a grain of salt because they could still be derailed by a deep global recession, but 2023 might be a smoother year for Amazon for four simple reasons.
First, it will benefit from relatively easy year-over-year comparisons to 2022. Second, inflation could be reined in and consumer spending could warm up again. Third, stabilizing interest rates and cooling geopolitical tensions (especially across Russia, Ukraine, and Europe) could prompt large companies and organizations to resume their cloud upgrades. A weaker U.S. dollar would also reduce the currency headwinds that throttled its growth throughout 2022.
Lastly, Amazon will likely implement more aggressive cost-cutting measures and automation efforts to offset its slower sales growth. It recently announced it would lay off more than 18,000 workers throughout early 2023 — compared to its previous plans for 10,000 layoffs — and ramp up its drone-powered Prime Air deliveries in California and Texas. Its planned acquisition of iRobot (IRBT 0.33%) could also enable it to build more automated warehouse robots.
The first half of 2023 might still be rough, but Amazon’s prospects could brighten in the second half as the macro situation improves. If that happens, investors might realize that Amazon is historically cheap at 1.5 times its 2023 sales. If it meets analysts’ expectations and trades at 2.0 times its trailing sales by the end of 2023, it could easily be worth $1.1 trillion.
Based on those facts, I believe Amazon has a clear shot at becoming a trillion-dollar stock again by 2024. But as a long-term Amazon investor, I’m not too concerned about its market cap. Instead, I believe Amazon is still a solid stock to hold for years (or even decades) as it continues to profit from the secular expansion of the e-commerce and cloud markets.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun has positions in Alphabet and Amazon.com. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Microsoft, and iRobot. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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