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Amazon could be in real trouble, this portfolio manager says

Amazon Stock

Are things still going amazingly for tech giant Amazon (Amazon Stock Quote, Charts, News, Analysts, Financials NASDAQ:AMZN)? Darren Sissons, vice-president and partner at Campbell, Lee and Ross, doesn’t think so.

“Amazon had an extremely strong run once COVID onset but was really rather modest last year,” Sissons said during his appearance on a BNN Bloomberg on Friday.

In particular, Sissons points to a number of issues facing the company, taking particular aim at some of the legal fights the company is currently navigating as a popular target of industry regulators.

“We’re getting to the point where it’s got lots and lots of money,” Sissons said. “It’s getting sued in many jurisdictions and there are also questions around antitrust and whether it’s an anti-competitive business model. Those issues are not going to go away.”

Sissons also raised questions about the company’s valuation, in particular what might happen if interest rates were to rise.

“If you want to buy just pure retail, you can go and buy Alibaba, you can go and buy Tencent” Sissons said. “You’re going to get the same exposure for pennies on the dollar in relative context and those businesses are growing just as fast, if not quicker.”

With things as they are right now, Sissons wouldn’t recommend that investors add any more Amazon money to their portfolios.

“If you’ve got a longer term timeline, a three to five-year period, if you’ve made some money, I would say at least take your cost base off the table,” Sissons said. “If it’s a trade, I don’t know if I’d sell it, but I would be watching it very closely, because there’s definitely potential for the stock to get hit, particularly if you get a rotation out of tech.” 

Amazon released its fourth quarter financial results on February 3, with losses across the cash flow spectrum on a trailing 12-month basis, including a 30 per cent decrease in operating cash flow to $46.3 billion (all figures in this article are in US dollars), and a reduction from $31 billion to $9.1 billion in free cash flow.

From a revenue perspective, Amazon’s net sales went up nine per cent sequentially to $137.4 billion, roughly in line with the consensus estimate of $137.6 billion and representing the company’s first period of single-digit growth since 2017. The company’s AWS sector was a positive, as its $17.8 billion report was a beat on the analyst consensus estimate of $17.38 billion.

Meanwhile, operating income was effectively halved on a year-over-year basis, ending up at $3.5 billion for the quarter.

Amazon also established targets on advertising revenue for the first time, with its $9.7 billion report representing a 32 per cent year-over-year increase to come in third behind only Google ($61.2 billion) and Meta ($32.6 billion) for the quarter.

Amazon ended 2021 with $469.8 billion in revenue, a 22 per cent constant currency year-over-year increase, while overall operating income increased to $24.9 billion. Even more revenue will likely be coming Amazon’s way in the future, as it has also raised the annual subscription price for its Amazon Prime service from $119 to $139.

“As expected over the holidays, we saw higher costs driven by labour supply shortages and inflationary pressures, and these issues persisted into the first quarter due to Omicron,” said Andy Jassy, CEO of Amazon in the company’s February 3 press release. “Despite these short-term challenges, we continue to feel optimistic and excited about the business as we emerge from the pandemic.”

Amazon’s reports provided even more of a mixed bag in the land of the tech giants, which began with Netflix missing on its subscriber count before Alphabet, Apple and Microsoft all comfortably beat estimates, only for Facebook to encounter issues of its own. 

However, since the release of the financial reports, Amazon has experienced a bit of a bounceback, aided dramatically by an $11.8 billion gain from its common shares in Rivian Automotive, a California-based electric vehicle company Amazon invested in after Rivian completed an initial public offering in November, which valued the company at $66.5 billion.

From a growth perspective, Amazon’s stock price has fallen off significantly from its 90.7 per cent three-year and 270 per cent five-year growth rates, posting a 5.1 per cent loss over the last 12 months, and a loss of 8.9 per cent since the start of 2022. 

The stock has fallen off a bit since its 52-week high of $3,731.41/share on July 8, though it has rebounded since dropping to a 52-week low of $2,776.91/share on February 3, the day of Amazon’s financial results going public.

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About The Author /

Geordie Carragher is a staff writer for Cantech Letter
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