Amazon (AMZN -5.51%) is best known as the world’s largest e-commerce giant, but has expanded far beyond its roots. One of the most diverse technology organizations an investor can own today, he holds leading positions in cloud services, the booming advertising segment and even the electric vehicle industry.
That’s why it’s important to monitor Amazon’s financial results. Amazon operates in so many areas that it can provide investors with unique insight into the health of consumers and the economy as a whole. The company announced its third-quarter earnings report on October 27. Despite some pessimism, there have been some positive results.
Amazon stock is down 45% from all-time highs, but here’s why investors should consider buying the decline.
Amazon’s core business weathers the storm
Amazon’s biggest revenue stream is e-commerce, so it’s no surprise that the company is one of the hardest hit by the economic downturn this year. High inflation is causing corporate costs to skyrocket, and combined with rising interest rates, it is constraining consumers’ purchasing power.
However, despite a slight decline in the international segment, the company’s net sales increased 15% year-over-year in the third quarter, the fastest growth rate to date in 2022. Amazon continues to invest in expanding its footprint, opening 12 new fulfillment centers during the quarter and officially launching 180 million products in Belgium.
Additionally, more and more high-profile brands continue to take advantage of Amazon’s unmatched online presence by opening stores on Amazon.com, making their products more accessible to consumers.Producer of digital-enabled home exercise equipment Peloton Interactive was one of the most notable new hires in Q3. Amazon customers were searching for Peloton products approximately 500,000 times each month, and we are now able to satisfy those queries. This is a success for both companies.
However, the growth of Amazon Web Services (AWS), the company’s industry-leading cloud services platform, was a bit disappointing, as revenue grew only 28% year-over-year. Growth slowed from 33% in the second quarter. AWS accounted for less than one-fifth of Amazon’s total revenue, but it accounted for all of the company’s operating profit in 2022, so if the slowdown continues, it could impact the profitability of the organization as a whole. There is a nature.
The good news is that the cloud computing industry isn’t going anywhere. With it projected to be a $1.5 trillion annual opportunity by 2030, AWS’s slowdown may just be a temporary problem.
Advertising was the bright spot
Most tech companies that rely on advertising to generate revenue have been decimated this year. When the economy slows, businesses cut their marketing budgets, fearing a lower return on investment as consumers buy fewer products.
But surprisingly, Amazon’s advertising division grew 30% year over year. This is his fastest pace so far in 2022, earning $9.5 billion. The company’s flagship website receives more than 2 billion hits per month, making it a very attractive place for sellers to pitch their wares.
But Amazon’s opportunity to sell ads goes beyond websites. The company continues to build an impressive portfolio of media his assets, especially on its Prime streaming platform, which currently hosts the NFL. thursday night footballThe first broadcast attracted 15 million viewers and resulted in the three largest Prime subscription signups in Amazon’s history.
Combined with other platforms such as Twitch streaming and Fire TV, Amazon’s advertising business could become a significant source of growth over time.
Why Amazon stock is worth buying now
Amazon makes clear the benefits of having a diverse business. Even in a difficult economic environment, the company delivered his 15% top-line growth in the third quarter, taking total revenue to his $127 billion. Without the strong USD it would have grown 19%.
AWS has been the company’s growth engine for the past few years, but a recent slight slowdown has been offset by strength in other areas of Amazon’s business.
Amazon was also able to generate a net profit (earnings) of $2.9 billion in the third quarter, despite a $1.1 contribution from the electric car maker’s stock. Rivian Automotive, increased in value during the quarter. But this is just another example of how Amazon’s diversity benefits investors.
The company’s fourth-quarter guidance suggests that the holiday season, the most important time of the year, could be bearish. It surprised investors who sold Amazon stock so quickly, but with it down 45% from its all-time high, this could be a great time to buy in the long term.
The recent economic downturn won’t last forever, and businesses are increasingly needing digital technology, which will boost AWS. Additionally, as the advertising segment continues to grow, Amazon seems like a pretty safe bet over the next five to ten years.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in any of the mentioned stocks. The Motley Fool has positions in and recommends Amazon and Peloton Interactive. The Motley Fool’s U.S. headquarters has a disclosure policy.