08 November 2022

Insights

Amazon stock trading: bears or bulls this holiday season?

By Paul Reid
By Paul Reid

Amazon’s Q3 revenue report of $127 billion was close to analysts projections of $127.5 billion. But net income fell from $3.1 billion in Q2 to $2.8 billion. Along with revenue drops, stock price has dropped too. AMZN continues a decline that started 1 year ago, from an ATH of $184 to $96. Is it rock bottom, or will there be more bulls than bears this winter?

Amazon’s e-commerce is rising

US sales increased by 20% to $78 billion. It looks like American’s who are enjoying fast and same-day delivery are preparing for the holiday season with Amazon.

Meanwhile, the rest of the world is seeing messages reading “Currently unavailable” or “This item cannot be dispatched to your selected delivery location.” And with delivery delays increasing, it’s no surprise international sales declined by 5% to $27 billion.

Overall, sales are up. A bullish outlook for the online store. But e-commerce is not the only source of revenue for Amazon.

Amazon Web Services on the up

Amazon Web Services (AWS) is a subsidiary of Amazon providing cloud services, accounting for $62 billion in revenue last year. AWS growth slowed, but still hit a very respectable 27% increase. 

AWS is a major contributor to Amazon’s huge cash flow, but their growth is directly tied to the technology sector, which is now facing downsizing and layoffs to balance a very overcooked expansion. Future reports might not be so sunny.

When it comes to business, growth is growth, so another bullish outlook is expected of Amazon’s web services.

A push and pull for Prime streaming

The highest it’s ever been, 170+ million people worldwide subscribe to Amazon Prime Video services, generating $31 billion last year. 

The streaming giant spent over $11 billion to acquire TV shows, movies, and music this year. Like Netflix, Amazon Prime streaming is at the mercy of its content. When the biggest most expensive productions make a flop, the subscription numbers take a hit, and so does subscription revenue.

Amazon's $1 billion "Lord of the Rings" TV series fell flat on its face in Q3, with a 39% rating on Rotten Tomatoes. Compared to the movie trilogy’s 95%, such a fail likely sent a doubtful message to both investors and subscribers. 

Unless Amazon can rebound with a hot new show worthy of trend, Prime viewers may start to wonder if the subscription is still worth it.

A mixed result for the streaming service. Subscriptions increased, but a billion dollar fail likely weighed heavy on AMZN.

Invincible advertising services 

Even though companies with similar revenue generating services reported losses, Amazon’s advertising service has seen a growth increase of 25% in Q3, compared to Q2, where growth came in at around 13%. Generating over $31 billion in revenue last year, the ad service is a big contributor to Amazon’s cash flow.

Amazon’s ecosystem is huge, and advertising is an internal monopoly. Products not using advertising are invisible and fade into oblivion without the aid of Amazon’s advertising. As long as Amazon has online stores wishing to sell, there will always be an ad revenue.

A sustainable bullish outlook for another one of Amazon’s big revenue generators.

Trading AMZN

So why is Amazon falling? After all, most revenue sources are profitable and report growth. You don’t need a Fibonacci retrace to see a correlation. There’s nothing broken about Amazon. Nothing to fix. The share price is simply reacting to the environment. The economy and economic sentiment is low and effecting every company on the planet right now.

Looking at the big picture, AMZN is the lowest it’s been in over two years. True. But it’s also higher than any time between 1997 and 2020. Covid boosted growth for obvious reasons, but that was never going to last.

Lockdown lifted, people turned off the TV and ventured out of their homes. Life, the market, and AMZN simply normalized to almost pre-COVID conditions. There’s no mystery or conspiracy. The market is full of volatility waves that prompt a brief equilibrium. Is AMZN a good asset to trade right now?

Amazon is still an amazing service used by 310 million people worldwide. AWS cloud services account for 10% of the web hosting industry, and there are still plenty of great viewing options for the ​​175 million Prime viewers.

Amazon has massive cash reserves to weather a storm. Other than alien invasion or a meteor strike, there’s only one way AMZN will go, but timing that eventual trend shift won’t be easy.

A rise won’t happen in a day. Stop orders and volatility protection are a must for overnight positions, especially if you are not living on US time. Check the AMZN chart daily in the coming weeks. Q4 2022 may well be the season to be jolly for AMZN traders.

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