Amazon (NYSE: AMZN) stock had a dismal 2022 and fell to the lowest level since 2020. After the crash, several brokerages see the e-commerce and cloud giant as a top pick for 2023.
JPMorgan, Citi, and Bank of America are among the brokerages that have listed Amazon as a top pick for 2023. The prediction should be taken with a pinch of salt though and even last year multiple brokerages including Cowen, Bank of America, Jefferies, and Goldman Sachs named the stock as a top idea for 2022.
As things stand out, with only about two weeks remaining in the year, Amazon stock is down over 47% YTD. The company’s market cap has fallen below $1 trillion and it became the first company ever to lose $1 trillion in market cap.
Tesla and Meta Platforms’ market cap has also fallen below $1 trillion. While Meta Platforms faces several headwinds in the short term, analysts find Meta stock as a good long-term buy.
Coming back to Amazon, the company is facing several challenges. 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. For the first time ever, Amazon workers in a UK facility have voted for a strike.
Why is Amazon Stock Falling
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. The company’s e-commerce sales sagged while AWS growth has slumped to the lowest level since it started to separately report the earnings of that business.
Analysts Are Bullish on AMZN Stock
Bank of America named AMZN stock as a top 2023 pick. It is optimistic that the company would gain market share in the e-commerce market and increase its margins. JPMorgan which previously listed Amazon stock as a top 2023 idea recently lowered its target price to $130 from $145.
It also lowered its estimates for the company’s Q4 2022 earnings. Nonetheless, the brokerage’s target price implies a massive upside in 2023. We have a guide on how to buy Amazon stock.
Citi is also bullish on AMZN stock for 2023. In a client note, it said, “We recognize the demand challenges facing Amazon’s retail business given macro, slowing AWS growth, and lower operating income.”
It added, “But we also believe Amazon can gain wallet share during these uncertain times and that adoption of AWS can accelerate through improved operating efficiencies, and hiring freezes can deliver improving operating income.”
Overall, Amazon still has a strong moat and competitive advantages. However, it needs to navigate the tough macro environment. 2022 was a challenging year for US stocks as well as the economy. Wall Street analysts are divided on whether 2023 would be any better for the US economy amid rising recession fears.
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This article was written for Business 2 Community by Mohit Oberoi.
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