JMP Securities Equity Research analyst Nick Jones recently told Yahoo Finance Live (video above) that there’s still a lot to like about Amazon ( AMZN ) stock despite the company’s tough year.
Amazon had a rough 2022, with the company’s stock down more than 40% year-to-date. The company is struggling with high inflation, rising interest rates and a sluggish advertising market, and recently announced that it will cut its corporate workforce from 10,000 to 18,000.
Even so, Amazon is still moving in the right direction, according to Jones. “We love that Amazon is investing in future technology, that they’re investing in growth,” he said. “For us, we don’t think that should happen. We like the stock today.”
According to Jones, the layoffs are not bad news for the company’s outlook.
“It’s a very small part of their workforce,” he said, since Amazon’s total corporate workforce is about 300,000. “We look at it as, ‘They’re starting to look at operating income.’ This is an area that investors are paying more and more attention to. They want to see Amazon better manage those numbers as each quarter progresses. So while we don’t think this will move the needle significantly, we like them. They’re paying attention to that and they’re cutting back.”
Amazon’s fourth-quarter profit guidance was subdued as the company said in October it expected to report revenue of $140 billion to $148 billion to end the year, missing analysts’ expectations.
Despite all the turmoil the company has been through, Jones believes CEO Andy Jassy has played his cards right, saying Jassy has been caught in the crossfire of the macroeconomic downturn.
“You can’t fight the Fed,” he said. “You can’t fight macro, and I think it’s a Fed-driven macro market that’s really squeezing a lot of people … more so than anything specific to what Jassy did at the company.”
Jassy, who will take the helm at Amazon in 2021, spoke about the company’s downsizing plans in a statement earlier this month.
“Amazon has struggled through uncertain and challenging economies in the past, and we will continue to do so,” Jassy wrote on Jan. 4. “These changes will help us realize our long-term opportunities with a stronger cost structure, but I’m also optimistic that we’ll be more inventive, resourceful and bold in this period where we’re not hiring extensively and eliminating some roles.” Long-standing companies go through different stages. They are not in expansion mode for heavy people every time. year.”
‘Undoubtedly still an AWS story’
So where does Jones think Amazon will go from here? The key to a successful 2023 for Amazon is for the company’s retail business to gather some steam, while the company’s burgeoning cloud division, Amazon Web Services (AWS), fuels its growth.
“It’s definitely still an AWS story,” Jones said. “I mean, we still want to see the retail business. I think advertising is undervalued, but it’s hard to like advertising until 2023 when we’re heading into a recession. So we should really see AWS start to pick up again. see estimates from the retail segment begins to rise.”
The truth is that the macro needs to equalize before we know what Amazon’s next moves will look like.
“We need to move downward in terms of calculations and gain more visibility into the macro situation,” Jones said. “Will the Fed continue to raise rates and how much? I think once we can see the cost of capital, where rates are going, investors can start to look up and think about what the back half is going to be. It’s like ’23 and ’24.”
Allie Garfinkle is a Senior Technical Reporter at Yahoo Finance. Follow him on Twitter @agarfinks.
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