Amazon stock is down 45%. Here’s why it’s a bear buy.

Amazon (AMZN -5.51%) is best known as the world’s largest e-commerce giant, but it has expanded far beyond those roots. It’s now one of the most diverse tech organizations investors can own, with a leadership position in cloud services, a booming advertising segment and even a hand in the electric vehicle industry.

That’s why it’s important to monitor Amazon’s financial results — it operates in so many areas that it can offer investors unique insight into consumer health and the broader economy. The company released its third-quarter earnings report on October 27, and while it was met with pessimism, there were several bright spots.

Amazon stock is down 45% from its all-time high, but here’s why investors should consider buying the dip.

Image source: Getty Images.

Amazon’s core business weathers the storm

Amazon’s biggest revenue driver is e-commerce, so it’s no surprise the company is one of the hardest hit this year by weakening economic conditions. It has suffered a double whammy: high inflation is causing business costs to skyrocket and, combined with rising interest rates, it is also limiting consumers’ purchasing power.

But despite a slight decline in the international segment, the company’s third-quarter net sales generated 15% year-over-year growth, the fastest rate of increase in 2022 so far. Amazon continues to invest in expanding its footprint, opening 12 new fulfillment centers in the quarter and officially launching in Belgium with 180 million products to start.

Additionally, more top brands continue to leverage Amazon’s unparalleled online presence by opening stores on Amazon.com, making their products more accessible to consumers. Digital-capable home exercise equipment producer Interactive Platoon was one of the most notable recruits of the third quarter. Amazon customers used to search for Peloton products approximately 500,000 times per month, so these queries can now be answered, which is a win for both companies.

But the growth of Amazon Web Services (AWS), the company’s leading cloud services platform, was a little disappointing, as sales only jumped 28% year-over-year. . It marked a deceleration from the 33% growth rate in the second quarter. Although AWS accounts for less than a fifth of Amazon’s total revenue, it was responsible for all of the company’s operating revenue in 2022, so if it continues to slow it could have a impact on the profitability of the entire organization.

The good news is that the cloud computing industry is definitely not going anywhere. It’s expected to become a $1.5 trillion annual opportunity by 2030, so the AWS slowdown might just be a temporary issue.

Advertising was a positive

Most tech companies that rely on advertising to generate revenue have been decimated this year. When the economy is weak, companies reduce their marketing budgets for fear of getting a lower return on investment because consumers are buying fewer products.

But remarkably, Amazon’s advertising unit just generated 30% year-over-year growth, which was its fastest pace in 2022 so far, generating $9.5 billion. of income. The company’s flagship website receives over 2 billion visits per month, making it a very attractive place for sellers to market their wares.

But Amazon’s opportunity to sell advertising extends far beyond its website alone. The company continues to build an impressive portfolio of media assets, especially on its Prime streaming platform, which now hosts the NFL. Thursday night football. The first broadcast drew 15 million viewers and generated the highest three hours of Prime subscriptions in Amazon’s history.

Combined with its other platforms like Twitch streaming and Fire TV, Amazon’s advertising business could become a key source of growth over time.

Why Amazon Stocks Are a Buy Now

Amazon lays bare the benefits of having a diverse business. Even in a tough economic environment, the company managed to generate 15% revenue growth in the third quarter with total revenue of $127 billion – and it would have been 19% had it not been for the strength of the US dollar.

AWS has been the company’s growth engine for the past two years, but its recent minor slowdown has been offset by strength in other areas of Amazon’s business.

Amazon also managed to generate net income (profit) of $2.9 billion in the third quarter, but with a $1.1 contribution from its stake in the electric vehicle maker. Rivian Automotive, which increased in value during the quarter. But that’s just another example of how Amazon’s diversity delivers gains for investors.

The company’s forecast for the fourth quarter suggests there could be some weakness ahead at the most important time of the year, the holidays. This spooked investors who were quick to sell Amazon shares, but with them down 45% from their all-time high, this could be a great long-term buying opportunity.

The recent economic weakness won’t last forever, and businesses need digital technology at an increasing rate, which will support AWS. Additionally, with its advertising segment continuing to grow, Amazon looks to be a safe bet for the next five to ten years.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Anthony Di Pizio has no position in the stocks mentioned. The Motley Fool holds positions and recommends Amazon and Peloton Interactive. The Motley Fool has a disclosure policy.

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