The Amazon is the latest fall of the Emperors of the Clouds

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For a decade Amazon(NASDAQ:AMZN) stocks have enriched investors and analysts look smart. Music stopped in 2021. Amazon shares have risen only 6% in the last year, while S&P the average increased by 23%.

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Analysts are wondering, what is going on? The company continues to grow by 15% in volume. Big retailers like it Costco wholesale (NASDAQ:COSTS) have become a new popularity, increasing by 43% despite falling in 2022.

The Amazon cloud still dominates. His Prime Video has more viewers than any unnamed streamer Netflix (NASDAQ:NFLX). Trade continues to grow.

But the bigger the numbers, the harder it is to move them. AMZN stock growth is slowing. When he reports Feb. 1, he is expected to make money only $ 3.90 / share. Last Christmas they were over $ 14 / share.

Is this the end of the Cloud Czar period?

The problem is trade

While stocks of all Cloud Czars have changed in the past month, AMZN stocks have been hit hardest. Trade is obviously the reason.

While Amazon reported $ 54.5 billion in service sales in the last quarter, most of the revenue still comes from retail. Retail is a low margin business. The September quarter was the first when Amazon’s services sold exceeded product sales.

In trade, growth slowed. In the first three quarters of 2021, it was only 17%. Sales of services continued to grow at 40%, close to speed alphabet (NASDAQ:GOOG). Its shares have risen by as much as 59 percent in the last year.

Amazon’s North American segment generated revenue of just $ 880 million in the third quarter, at $ 65.5 billion in sales. This is only a 1.3% margin. Kroger (NYSE:KR) had close to this operating profit for $ 31.8 billion in sales.

The trade is facing intense control by regulators and continues union efforts. But the big problem is its marketplace third-party vendors, the sales model of competitors copy.

What will Jassy do?

New CEO Andy Jassy has been surprisingly passive in the face of these challenges. There was no movement divide the stock or even introduce a small dividend. There was no move to split the company, which I suggested was necessary to avoid the present the stock value trap.

For this reason, the announcement of the company’s profits on February 1 is crucial. Expectations are low. The conference call will be even more crucial with its projections for the future and the possibility of larger corporate announcements.

Analysts are still hitting the table for Amazon. Barron’s it calls purchase. Analysts at TheStreet.com investors buy dip. Any analyst who follows Amazon on Tipranks he still wants you buy. I do not sell my shares.

Amazon continues to allocate capital at a furious rate, s $ 14.75 billion only in the third quarter. That’s twice as much $ 7.3 billion in cash flow from operations formed in the same period.

Bottom line

Investor confidence can turn to pennies, as can the support of management analysts.

Jassy needs to make a few moves. If Amazon’s results don’t exceed estimates for the Christmas quarter, stocks could fall sharply. It could even fall short of estimates if Jassy doesn’t offer something that would change the current path.

Amazon is now fourth in market capitalization among the five cloud emperors. Its $ 1.67 trillion last year surpassed Alphabet’s $ 1.86 trillion. While Amazon’s cloud network remains the largest and most profitable in the industry, the operation of low-margin stores is dragging the company’s value down.

Jassy doesn’t have to break up the company. But if he doesn’t change the narrative soon, there will be trouble on Wall Street.

On the day of publication, Dana Blankenhorn held a long position at AMZN. The opinions expressed in this article are those of the author and are the subject of InvestorPlace.com Guidelines for publication.

Dana Blankenhorn has been a financial and technological journalist since 1978. He is an author The technological big bang: yesterday, today and tomorrow with Moore’s Law, available at the Amazon Kindle Store. Write to him [email protected], tweet to him @danablankenhorn, or subscribe to its Sub-Fund https://danafblankenhorn.substack.com/.

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