Amazon (NYSE: AMZN) stock has been in a freefall and has earned the dubious distinction of losing $1 trillion in its market cap. Here’s what’s ailing the once formidable FAANG constituent.

With a YTD loss of 44%, Amazon is the third worst-performing FAANG stock of 2022. Meta Platforms is the worst performer while Netflix is the second worst.

Notably, Amazon stock trailed markets as well as FAANG peers in 2021 also. The e-commerce giant was barely in the green last year with a 2.4% gain while other FAANG names delivered strong double-digit returns.

To be sure, there has been turmoil in all tech stocks in 2022 and many are faring even worse than Amazon. However, the absolute losses in Amazon and its 2021 underperformance make it stands out.

Taking the lead from other tech companies, Amazon has announced mass layoffs. It is also exiting some businesses and has shut its edtech and food delivery business in India in an apparent bid to cut its losses.

What’s Wrong with Amazon Stock?

Plenty is wrong with Amazon, part of which is company-specific while the others are macro headwinds. 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. Add the rising inflation and there is a perfect recipe for disaster.

But then, these macro headwinds are compounded by multiple idiosyncratic issues. Many of Amazon’s warehouse workers are protesting for higher pay and better working conditions. As part of the “Make Amazon Pay” campaign, workers in several countries protested on Black Friday.

On its website, Make Amazon Pay states, “For workers and consumers, the price of everything is going up. And for everyone, the global temperature is rising and our planet is under stress. But instead of supporting its workers, communities and the planet, Amazon is squeezing every last drop it can.”

Amazon’s treatment of warehouse workers has always been under scrutiny. While the company raised the minimum wages in the US, the controversy refuses to die down.

Amazon Has Been Losing Money and Burning Cash

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.

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. Captify, an advertising technology company, estimated that Walmart topped the list of companies that topped online searches for Black Friday deals this year.

Amazon, which was the leader last year fell to the fourth spot. While Amazon still has a strong network effect and a massive ecosystem consisting of logistics, Prime, and a wide array of products on the platform, other companies are fast catching up.

Wall Street Still Likes AMZN Stock and Recommends a Buy

Most Wall Street analysts like AMZN stock though despite the slump. While several analysts lowered their target price on the stock after the Q3 2022 earnings miss, overall, Wall Street is overwhelmingly bullish on the stock. We have a guide on how beginners can buy Amazon stock.

Last week, Piper Sandler reiterated AMZN stock as overweight. It said that the stock could recover pointing to the rally in peer companies that saw upwards price action after announcing headcount reduction.

Even Alphabet is under pressure from stockholders to cut costs and lower its headcount. TCI Fund Management which holds over $6 billion in Alphabet also said that the stock is undervalued. Most Wall Street analysts are also bullish on the stock. We have a guide on how investors can buy Alphabet stock.

Coming back to Amazon stock, the last time it fell over 50% from its peak was in the 2008 market crash. However, it recovered eventually to become a trillion-dollar giant. With its multiple troubles, can AMZN repeat the magic yet again? We’ll have to wait and see.

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