The Amazon share price tumbled by 10% on Friday, recovering somewhat from a whopping 20% drop overnight. This came after the company released its latest earnings report. The retail giant lost $200bn in value after it missed revenue estimates and issued a disappointing guidance for the next quarter.
It’s not often a trillion dollar company experiences such a sharp share price move. Does it present an opportunity for me to buy one of the world’s largest companies at a discount? Or has this FAANG stock lost its sparkle?
Amazon share price drop
To answer that, I’d need to look a little closer at what the company said. I suspect the Amazon share price dropped so sharply due to the guidance given for the upcoming holiday season.
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Amazon said it expects net sales to be between $140bn and $148bn in the fourth quarter. But analysts were expecting the forecast to be over $155bn.
CEO Andy Jassy pointed to the macroeconomic environment. Higher inflation and soaring interest rates are squeezing customer finances. And that is directly impacting Amazon’s sales. The stronger dollar this year is also having a negative impact on its sales.
Looking ahead
That said, the stock market tries to look forward and anticipate what sales and profits are likely to be in the months and years ahead. So could the situation improve and help the Amazon share price to bounce back higher in the coming year?
Much seems to be outside of Amazon’s control. Any sign of resolve in the conflict in Ukraine could result in lower energy costs. Any signs of falling inflation could persuade the US Federal Reserve to pivot on their current approach of raising interest rates.
All these factors could improve the macroeconomic environment and lead to higher sales for Amazon.
I reckon all these things will happen eventually and the situation will improve. But it might take some time. That’s why I’m in no hurry to buy Amazon shares right now.
Long-term investing
That said, I favour long-term investing. Looking several years ahead, the current challenges may look like temporary blips in Amazon’s long-term journey.
Despite the external economic factors currently hurting the company, there are levers that it can pull. It’s already taking measures to tighten its belt and reduce costs. That includes pausing hiring in certain businesses and winding down some of its less-used services.
At the same time, it will continue to focus on providing the best customer experience. This has been key factor in Amazon’s ethos since Jeff Bezos started it as an online bookstore a few decades ago. By putting customers first, it believes the Amazon share price will reward shareholders in the long term.
That’s where I agree. In addition to being the world’s largest online retailer, Amazon also owns the world’s largest cloud platform, Amazon Web Services (AWS). I reckon it’s well-placed to benefit from a continuing global shift towards cloud computing over the coming decade.
Overall, I think the long-term future for Amazon looks bright. That said, near-term headwinds could lead to a volatile share price over the coming months. It’s certainly an investment I’ll be keeping an eye on.
