Amazon decline presents long-term opportunity for investors

SAN FRANCISCO - OCTOBER 11: Amazon logo on black shiny wall in San Francisco mall in California on October 11, 2015. Amazon is an American international electronic commerce company. It is the world's largest online retailer.

The Amazon share price has been on a strong downward trajectory throughout the year, dropping by over 45 per cent year-to-date and 10 per cent in the past month. Last week, the company’s value saw a drop of more than 5 per cent, and it is highly likely that we might continue to see an aggressive downward trend throughout this week. 

Amazon Share Price Fundamental Analysis

Amazon is a leading e-commerce and cloud computing company based in the United States. In 2021, the company was valued at almost $1.9 trillion but has since experienced a decline in its stock price and valuation. This has been attributed to high inflation and rising interest rates, which have impacted consumers’ spending power and therefore been a drag on Amazon’s retail business.

In response to these challenges, Amazon has been looking to cut costs, including through layoffs. In the coming months, the company is expected to lay off as many as 20,000 employees across the business, including distribution centre workers, technology staff and corporate executives. This is the largest staff reduction in the company’s history.

Despite these challenges, Amazon continues to generate robust levels of growth, particularly in its advertising and cloud computing businesses. Its advertising business is growing at the fastest pace of 2022 so far, benefiting from the company’s extensive digital real estate and its growing presence in the streaming industry. Meanwhile, Amazon Web Services (AWS) remains the profitability engine behind the company and is well-positioned to capitalize on the growing demand for cloud services.

Former Amazon executive John Rossman has presented a blueprint for turning the company around, advocating for a “zero-based” approach and a “brutal rationalization of capital expenses”. He also suggests that Amazon should consider spinning off AWS to maximize overall enterprise value.

Overall, Amazon’s recent decline in valuation presents a unique long-term opportunity for investors. The company’s strong growth in key areas, as well as its focus on cost-cutting and efficiency, make it well-positioned to navigate the current economic environment and continue to drive value for shareholders.

On the technical side of things, the recent price action indicates a high likelihood that we might continue to see a further drop in the markets. Last week’s 5 per cent drop is likely to be extended in today’s trading session. Therefore, my Amazon price prediction expects its price to drop below the $80 price level in the coming sessions. However, trading above the $95 price level will invalidate my long-term bearish analysis. 

Daily Chart

Amazon share price