Amazon (NASDAQ:AMZN) stock has fallen by around 15% since the beginning of the year. And it’s trading a further 12% lower today.
I own Amazon shares in my stock portfolio. So, should I be worried about the falling share price?
Amazon stock
According to Warren Buffett, what matters is not the stock itself but the underlying business. In order to figure out whether I should be concerned, I therefore need to look at how the business itself is doing.
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If the company is performing in line with my expectations, then I probably have nothing to worry about. If the falling share price is indicating a problem with the business, though, then I should be concerned.
Amazon earnings
One of the best ways to keep up to date with how a business is doing is by looking at its quarterly earnings reports. Amazon reported its earnings last night, which probably explains why its shares are down today.
It appears there are two major sources of disappointment for investors. The first is that the company reported a net loss during the first quarter of 2022. This sounds dramatic, but I don’t think that it is.
The loss was due to a decline in value of the Amazon’s investment in electric vehicle company Rivian. Since its IPO at the end of last year, Rivian’s share price has fallen by around 75%.
Since it owns a large quantity of Rivian shares, Amazon reported the decline as a $7.6bn loss on its income statement. This is the main cause of the reported loss.
I don’t see this as a huge issue. It indicates to me that Amazon’s investment in Rivian hasn’t gone to plan, but it doesn’t cause me to think that anything is wrong with any of its core businesses.
The more significant issue, to my mind, is the disappointing revenue numbers.
Amazon revenues
Amazon reported revenue growth of around 7%. For a business that has consistently increased its revenues at over 20%, that seems disappointing. Furthermore, the company said that it expects growth in the next quarter to be between 3% and 7%.
Management attributed the disappointing growth rate to difficult macroeconomic conditions. While I don’t enjoy high inflation, I am somewhat relieved that this is what is slowing revenue growth.
As a cyclical business, I expect Amazon to do better when macroeconomic conditions are good and worse when they are difficult. Over time, I think the company will do very well. But I don’t expect it to do well every quarter or even every year.
I believe that economic conditions will eventually improve and Amazon will do well when it does. What would have concerned me more would have been news that revenue growth was slowing because a competitor had been taking market share. There seems to be no sign of that.
Overall, the decline in revenue growth is in line with my general outlook for Amazon as a business. This is just one of those difficult years that every company has. I still expect Amazon to perform well over time, so I don’t see the falling share price as a cause for concern. In fact, I think it’s a buying opportunity for me.
