Why the Amazon share price is falling today

A reported net loss and disappointing revenue guidance are weighing on the Amazon share price today. Should our writer be worried about his investment?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Man sat at laptop computer using credit card to pay online using mobile phone

Image source: Getty Images.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Key Points

  • Amazon reported slowing growth and a net loss in its quarterly earnings
  • The company is a cyclical business that I expect to do better in favourable economic conditions
  • The loss was due to a decline in Amazon's investment in Rivian, rather than a problem with its underlying business

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. 

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. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stephen Wright has positions in Amazon. The Motley Fool UK has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »

Investing Articles

Billionaire Warren Buffett just bought shares of Domino’s Pizza. Should I grab a slice?

Our writer takes a look at a few reasons why Domino's Pizza stock might have appealed to Warren Buffett's Berkshire…

Read more »