As we head into the last month of the year, the S&P 500 is down 16%. This is firmly in stock market correction territory. While it fell below that in parts of the year, the potential bear market hasn’t been confirmed in 2022.
2023 could lead to the resurgence of a bull market, or the market could slide further. If the market takes an upturn, one thing that is likely to happen in 2023 is this Amazonia (NASDAQ:AMZN) it will become a trillion-dollar company again.
It’s been there before
With Amazon, it’s a matter of when, not if. It was already there, with its market cap peaking at nearly $1.9 trillion a year ago at its 2021 peak. Its stock is now down 48% since then, with a market cap of $1.9 trillion. 950 billion.
The market is what it is today, there are only three companies valued at over $1 trillion: Apple, Microsoftet Alphabet. Amazon will join them soon and many more companies will join them in the coming years.
The State of Amazonia
In the third quarter, the e-commerce giant’s sales growth remained impressive. Revenues increased 15% from a year ago to $127 billion, with particular strength in the North American market, which grew 20%. But operating profit fell by about half, from $4.9 billion last year to $2.5 billion.
Management typically measures its progress in terms of operating profit rather than net income, as it sees it as a more reliable measure of its overall health. Net income, or loss, takes into account factors such as your investments in Rivian car, which has skewed net income both positively and negatively in recent quarters. Net income fell to $2.9 billion in the third quarter, higher than operating income due to a pre-tax benefit from Rivian.
Cash flow also declined and fell into negative territory for the first time in more than a decade.
AMZN Free cash flow data from YCharts
Pulling the levers of your growth
Amazon is currently facing some setbacks amid rising costs, rising wages, supply issues, and inflation hitting retail spending. The economic slowdown is also starting to hit Amazon Web Services (AWS), which was still strong in the third quarter but whose sales growth has slowed slightly.
Management is not concerned. Amazon has been here before, and it’s rolling with the punches and paving the way for continued growth. Like many tech companies, it is making a series of layoffs after a surge in hiring to meet growing demand. It’s looking at many ways to cut costs now that demand is declining.
It also redirects its resources to generate higher income. It has ditched its old healthcare business, Amazon Care, and is launching a new spinoff called Amazon Clinic with assets from its acquisition of One Medical in April.
With Prime memberships topping 200 million, there’s still a lot of money coming in and a strong moat around its core retail business. There’s also great potential in Amazon’s “just walk out” technology, which it licenses to other retailers. Amazon has no shortage of ways to grow its business, but the main focus in this atmosphere is to cut expenses before returning to growth mode.
will come back
Amazon shares have lost significant value several times in the past. For example, shares of Amazon fell more than 50% from 2007 to 2008. But they’ve risen more than 4,000% since then, even at its current depressed price.
There’s never a guarantee, but winners tend to keep winning. It seems only a matter of time before Amazon shares start gaining again and become trillion-dollar stocks, surpassing that level and rewarding shareholders.
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John Mackey, CEO of Whole Foods Market, a subsidiary of Amazon, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a member of the board of directors of The Motley Fool. Jennifer Saibil has no position in the quoted stocks. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple and Microsoft. The Motley Fool recommends the following options: Long Calls $120 in March 2023 at Apple and Short Calls $130 in March 2023 at Apple. The Motley Fool has a disclosure policy.
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