Table of Contents: Why is Amazon Stock Down?
Why is amazon stock down 2022? Few names are more recognizable around the world than Amazon. It would have been difficult for anyone to imagine what the company founded by Jeff Bezos back in 1995 would eventually become. Originally envisioned as an online bookseller, Amazon is now the world’s most valuable retailer, reaching a market capitalization of as much as $1.8 trillion back in 2021. Should I buy amazon stock now? What is the amazon stock prediction 2025?
Unfortunately for the giant, 2022 has not been a great year for business, something that has been reflected in its stock’s considerable drop in value.
Amazon’s performance this year has been so bad that it became the first company to lose more than $1 trillion in market value. According to the New York Times and other outlets, this poor performance resulted in the company planning to fire as many as 10,000 employees.
Given the size and increasing popularity of the company and its relevance in several industries, it is not surprising that most investors consider adding its stock to their portfolio.
However, the poor performance of Amazon’s stock over the past year has most people reconsidering. To decide if they should keep, sell, or add Amazon stock to their portfolio, every investor should be asking themselves: Why is Amazon stock down? Let’s talk about that and will amazon stock recover.
Amazon: More Than an Online Retailer
Over its almost 30 years of existence, Amazon has cemented a reputation for innovation exploring many different industries, products and service offerings, business models, and much more.
While many praise Amazon as a case study of what businesses thrive to be, others are much more critical of the company’s practices and business model. No matter which side you are on, no one can deny the company’s success.
In the words of journalist and writer George Packer:
“Amazon is a global superstore, like Walmart. It’s also a hardware manufacturer, like Apple, and a utility, like Con Edison, and a video distributor, like Netflix, and a book publisher, like Random House, and a production studio, like Paramount, and a literary magazine, like The Paris Review, and a grocery deliverer, like FreshDirect, and someday it might be a package service, like U.P.S. Its founder and chief executive, Jeff Bezos, also owns a major newspaper, the Washington Post. All these streams and tributaries make Amazon something radically new in the history of American business.”
Listing all of the products and services offered by Amazon at this point in time is a hard thing to do. While Packer mentioned many of them, there are still many industries in which the giant has started operating over the past years. These include video games, cloud computing, cloud storage, charity, payments, and many other industries. Why is amazon stock down?
A Difficult Answer to a Difficult Question
Amazon’s decision to dabble in several industries makes it difficult to give an easy answer to the question of why its stock has been going down.
Sure, it is possible to point out the criticism of its labor practices, the general crash of the market earlier this year, the effects of the Russian invasion of Ukraine, the many controversies around data use, poor public relations decisions, and many more. However, these reasons mean nothing without context.
When it comes to making investing decisions, understanding the factors influencing stock prices is essential to elaborate a strategy in the long term. For this reason, we will take a deeper look at the main causes behind the drop in Amazon’s stock prices.
A Year of Controversies
While Amazon is no stranger to controversies, 2022 was especially difficult for the giant. In the past, there have been many controversies around working conditions in Amazon’s warehouses.
Back in 2019, an Amazon warehouse worker died after 20 minutes without receiving treatment during her shift, which sparked criticism. Outlets like The Guardian and shows like Last Week Tonight were quick to cover the news, putting Amazon in the spotlight.
Criticism around Amazon’s work conditions resparked this year as the company failed to learn from the past. For example, the company has been known to retaliate against employees looking to unionize, which has resulted in legal battles in which the giant was told to “cease and desist” from doing so.
Other criticism includes the use of customer data to favor Amazon’s own products over those of other sellers, even when some of its own products are direct copies of its competitors. This stifling of the competition earned Amazon several antitrust lawsuits such as the one in California.
Controversy is never a good thing for a company, especially at a time when talks about a possible recession are making headlines regularly.
Amazon’s Pessimism For Q4
Historically, the stock market has proven to be quick to react once a company releases the figures for a given period of time. This was no different in Amazon’s case when it published the latest figures for its performance.
According to the company, revenue for the third quarter of 2022 was 15% higher than during the same period a year ago. Unfortunately, Amazon’s outlook for the fourth quarter was quite pessimistic.
According to the company, it expected the revenue for the last quarter of the year to be between $140 and $148 billion. This was significantly lower than what analysts had estimated in the prior months, with projections having been around $155 billion. The effects of this forecast were magnified by the fact that the company’s profit could be as low as $0.
Of course, investors were quick to react to the news and sell their Amazon shares, resulting in a drop of 20% in a matter of hours. While a slight recovery took place afterward, the effects of the forecast are still being felt as investor trust eroded.
A Generalized Problem
Amazon is not the only company struggling to perform at the level investors expected from them. Names like Microsoft, Meta, and Apple also have seen their shares experience similar movements during 2022, with the former having been a contender to beat Amazon’s $1 trillion record-breaking drop.
When taking a look at the tech industry, which Amazon is a part of, a trend starts to emerge. Companies in the industry have been laying off employees right and left.
According to some analysts, the current levels of layoffs are approaching those seen during the great recession. With Amazon’s CEO already having already announced the company’s layoffs will extend into next year, Amazon is just joining other companies doing the same.
Unfortunately, while other companies have approached the layoffs in a different manner, Amazon’s CEO was less empathetic about it. Despite the company having hired thousands of employees during the COVID-19 pandemic only to fire 10,000 less than 2 years later, Andy Jassy expressed he didn’t regret the decision.
While the decision to hire and now lay off thousands of employees was seen as necessary by many, the remarks have raised widespread criticism. This became especially problematic when combined with the fact that Amazon’s founder, Jeff Bezos, expressed that he was planning to give his fortune away to charity while also stating doing so was “hard”, sparking further criticism.
Advertising Is Harder Than Ever Before
While many are not aware, Amazon is one of the biggest players in the advertising industry. Over the past years, the company has seen its ad sales grow at a faster rate than those of competitors, resulting in its market share growing fast. In fact, the company outpaced Meta and Google back in August of 2022.
Unfortunately for those in the advertising business, increasing concerns around privacy have made it difficult for them to continue growing as fast as years ago. With companies like Apple changing their privacy controls, the playing field is changing at a quick pace. While Apple’s decision didn’t affect Amazon as much as other companies, the effects go beyond individual companies.
Amazon’s CFO Brian Olsavsky expressed in a call back in October that the company was seeing a decrease in the demand for advertising services.
Advertisers are also spending less money per impression, which has considerably decreased the profit the company makes. According to Olsavsky, the company is “preparing for what could be a slower growth period, like most companies.”