Mohit Oberoi
Amazon (NYSE: AMZN) has reached a settlement with the EU in three separate antitrust cases. However, the troubles are far from over for the FAANG constituent as its stock closed at a new 52-week low yesterday.
Looking at the first case, the EU accused Amazon of unfairly pushing its own products on the platform over rival merchants. The company faced charges of using its gigantic size and access to sellers’ data for unfair competitive advantage,
In its settlement with the EU, Amazon has agreed to treat all sellers on the platform equally and not use sellers’ data for its own private-label products.
The second case related to the “buy box” on the platform which generated the bulk of its sales. The company has agreed to create a second “buy box” for customers in case the price and delivery on similar products differ significantly from the first box.
While settling the third case, Amazon agreed to allow sellers under Prime to pick their own delivery and logistics service which might not otherwise be approved by Amazon.
Amazon Agrees to Settle Antitrust Cases with the EU
At a press conference, EU Competition Commissioner Margrethe Vestager said, “The Commission has decided to accept commitments offered by Amazon. These commitments address our preliminary competition concerns about Amazon practices on its e-commerce marketplace.”
That said, Amazon’s troubles in the continent are far from over and it still faces probes in the UK and Germany.
Notably, US tech companies are facing increased scrutiny globally over their alleged antitrust behavior. The EU has also accused Meta Platforms of antitrust and said that the company used its dominant market position to unduly benefit the Facebook marketplace.
While many analysts are apprehensive about Meta Platforms in the short term, JPMorgan upgraded the stock to overweight and raised its target price to $150. The brokerage advises buying Meta Platforms stock and sees the company doing well in 2023.
Troubles Mount for Amazon Stock as Its Market Cap Continues to Slide
Once on the verge of surpassing $2 trillion market cap, Amazon’s market cap is a mere $866 billion. It has lost over $1 trillion in market cap from its peak, becoming the first company to reach the dubious feat.
Amazon stock faces multiple headwinds, both on the macro as well as company-specific levels. Looking at the macro scenario, like fellow Big Tech companies Amazon is witnessing a growth slowdown. To make things worse, it finds itself overstaffed and has also overinvested in capacity. High inflation is also eating into its profits while adding to the pressure on the top line.
While Amazon’s profit margins have never been high, it was a cash flow engine. The company’s AWS operations are a cash cow whose free cash flows it has been using the fund some of the other unprofitable businesses like Alexa and international e-commerce operations.
Several Analysts List AMZN as a Top Pick for 2023
However, Amazon posted negative free cash flows last year and looks on track for a cash burn this year also. AWS’s growth has also cooled down amid a slowing economy and rising competition.
Also, as brick-and-mortar companies ramp up their e-commerce operations, Amazon is facing competitive pressures, and its revenue growth disappointed in Q3 2022. Its revenue guidance for the fourth quarter also fell short of estimates.
AWS growth has slumped to the lowest level since it started to separately report the earnings of that business.
Amazon stock underperformed markets in 2021 as well. After the recent crash, many Wall Street analysts believe that the stock would rebound in 2023. Citi, Bank of America, and JPMorgan are among the brokerages which have added AMZN stock to their 2023 top ideas list.
Most brokerages are bullish on Amazon stock even as many have lowered their target prices. We have a guide on how to buy Amazon stock.
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This article was written for Business 2 Community by Mohit Oberoi.
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