For a while, it seemed as if Amazon (NASDAQ:AMZN) was invincible and invulnerable. AMZN stock just kept marching higher regardless of macroeconomic conditions. Now, however, the tide is turning.
A huge share selloff, due to some alarming data points and a statement from the CFO, showed that Amazon has problems that won’t necessarily be resolved anytime soon.
You can find the signs of trouble if you know where to look. For example, Amazon reduced its number of full- and part-time employees by 4.2%, from 1,608,000 at the end of 2021 to 1,541,000 as of Dec. 31, 2022. That’s Amazon’s first annual workforce reduction since 2002, when the dot-com bubble was still bursting.
It seems that Amazon just got too big and bloated, and wasn’t prepared to handle a decline in macroeconomic conditions. Now, Amazon’s weaknesses are exposed and prudent investors should maintain a safe distance.
What’s Happening with AMZN Stock?
Feb. 3, 2023, was a day that many of Amazon’s shareholders would probably prefer to forget. That day, AMZN stock tanked 8.43%, landing at $103 and change.
Was this an overreaction to Amazon’s fourth-quarter and full-year 2022 financial results? Don’t assume there’s a prime bargain here, as the share selloff might actually be justified.
We already pointed out Amazon’s workforce reduction, which is likely the result of over-hiring and under-preparation for a downturn in the economy. As it turns out, Amazon’s 18,000+ job eliminations will, according to CFO Brian Olsavsky, result in an “estimated severance cost of $640 million.”
And, that was Olsavsky’s only startling statement. Per the Wall Street Journal, the CFO warned, “We do expect to see some slower growth rates for the next few quarters.” Honesty is the best policy, sure, but that type of declaration isn’t going to inspire confidence in the investing community.
Amazon Posted Disappointing Cloud Unit Results
Olsavsky’s warning wasn’t the only reason financial traders dumped AMZN stock, however. They also reacted to disappointing quarterly results, particularly in Amazon’s cloud-computing division.
You might know Amazon first and foremost as an e-commerce giant. Regarding that, Amazon reported a $240 million operating loss in its fourth-quarter 2022 domestic e-commerce business.
So far, it sounds like the company’s having problems. Yet, it only gets worse from here. Amazon wants to be a cloud king, but Amazon Web Services (the company’s cloud-computing unit, also known as AWS) reported Q4 2022 revenue of $21.38 billion and operating income of $5.21 billion.
Those results fell short of Wall Street’s estimate of $21.85 billion in revenue and $5.73 billion in operating income for AWS. It’s yet another sign that the mighty Amazon is losing its magic touch.
What You Can Do Now
As the old saying goes, the bigger they are, the harder they fall. Amazon, like many empires in history, may have overextended itself. The results could be a decline that persists throughout 2023.
Or, Amazon could recover this year, but that remains to be seen. The company has some proving to do, so cautious investors should wait to see some positive data before jumping into a trade with AMZN stock.
On the date of publication, Louis Navellier had a long position in AMZN. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.