- Amazon (AMZN) stock fell as growth fell out of favor and the store disappointed.
- Amazon Web Services is worth as much as the whole company.
- Amazon has always been a long-term investment, not a trade.
If you’re an investor in Amazon (NASDAQ:AMZN), you’re being told today that you’re down 40% from the highs, that you have lost money.
You haven’t lost as much as co-founder Jeff Bezos, now the third-richest person on the planet, worth “only” $132 billion.
But unless you decide to sell, you haven’t lost a thing. I continue to believe in AMZN stock as a long-term investment. I was wrong to write a buy recommendation before the latest tech wreck but, if you’re patient, you’ll come good, too.
| Ticker | Company | Price |
| AMZN | Amazon | $2,222.91 |
Why AMZN Stock?
Amazon is simply the best cloud stock you can buy.
Amazon has the largest cloud network in the world, with scaled data centers on every continent. It has seven more centers under construction, even one in New Zealand.
All these data centers, like its warehouses, were built with cash flow, not debt. Anything it bought last year costs only maintenance this year. The key to the cloud growth was renting the capacity, through Amazon Web Services. AWS had revenue of $18.4 billion in the first quarter alone and one-third was net income. It continues to grow at more than 30% per year, in line with the market.
AWS gives Amazon a huge advantage in every other business it touches. This includes the Alexa, Kindle, and especially Amazon Prime Video, the second largest paid streamer after Netflix (NASDAQ:NFLX), an AWS customer. Don’t forget Freevee, the free streamer formerly called IMDB. Freevee gives Amazon another important source of ad revenue, alongside ads on its store site. This is practically free money. When ads aren’t sold, Amazon can use the time to sell Alexa, Prime, and items from the store.
The Amazon store only seems to be a problem. Sales grew explosively during the pandemic and the company raced to catch up. Now growth has slowed, internationally it even reversed.
But this can be an opportunity for Amazon to get a handle on its supply chains and warehouse operations. I expect the store to grow at single-digit rates, but to quickly turn profitable.
Why Amazon Fell
In a bear market it doesn’t take much to sour traders on a stock.
Amazon’s first quarter missed estimates. Its outlook also came up short. There are worries about unions, about regulation, about inflation and global growth.
Amazon doesn’t share its gains with shareholders. There’s no dividend, and the $10 billion buyback is meaningless on a market cap of $1.1 trillion. (The pending 20:1 stock split is a non-event, serving only to reduce the stock price’s volatility.) Add a quarterly loss, caused by investment in Rivian (NASDAQ:RIVN), and it’s small wonder the stock has fallen. Who wants to pay 51 times earnings when the S&P 500 price-to-earnings ratio has fallen below 20?
But if Amazon were forced to break up, it’s likely that AWS’ would be worth more than what the whole company is worth now. You’re getting the Prime Video business, the ad business, the devices business and even the store for practically nothing.
That’s why analysts keep pounding the table for Amazon stock. Of 38 at Tipranks, only 1 is saying sell. The lowest price forecast among these analysts calls for a gain of nearly 25% from the stock’s present level.
The Bottom Line on AMZN Stock
There are only five cloud czars that now dominate the global economy. In terms of the cloud itself, Amazon is the biggest. Despite Microsoft’s (NASDAQ:MSFT) recent gains, it’s not even close.
Amazon has huge opportunities in streaming, in devices, in advertising, and in health care, where it has a pharmacy and a virtual care service.
Amazon has big problems in its store, but these can be fixed. There are problems in the global economy, but that’s true for everyone.
Amazon’s stock is down, but its business is not. Three years from now you’ll be glad to own it. So why not buy it now, when it’s cheap?
On the date of publication, Dana Blankenhorn held long positions in AMZN and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.
