shares of Amazon.co.jp (AMZN 1.88%) Data from S&P Global Market Intelligence shows the stock price of the online retail giant has plunged 12% over the past week, further declining since its third-quarter earnings report on Oct. 27.
Amazon’s net sales increased 15% year-over-year to $127.1 billion. Excluding foreign exchange movements, the e-commerce leader’s revenue increased by 19%.
However, Amazon Web Services revenue growth slowed to 27% from 33% in the second quarter and 39% in the same period last year. This division, often called AWS, is Amazon’s most important profit driver, so investors were understandably concerned about the segment’s slowing pace of expansion.
Additionally, rising fulfillment and labor costs have squeezed Amazon’s retail margins, and rising energy costs have hit the company’s cloud computing business. Meanwhile, Amazon’s operating profit he plummeted 49% to $2.5 billion.
Amazon’s guidance was even more worrisome. Management expects sales growth to slow to just 2% to 8% in the fourth quarter. The company’s earnings forecast of $140 billion to $148 billion fell short of Wall Street’s estimate of about $155 billion.
In a conference call with analysts, Chief Financial Officer Brian Olsavsky said inflation and other economic concerns are pushing consumers and businesses to hold back spending.
Despite these short-term challenges, Amazon’s long-term future remains bright. Fuel, transportation and electricity costs should ease as inflation eases over time. Amazon is also working to make its large-scale fulfillment network more efficient after doubling in size during the pandemic.
Most importantly, the move to the cloud is still in its early stages. CEO Andy Jassy said in April that only about 5% of global information technology (IT) spending is spent in the cloud.still research company Gartner predicts that by 2025, more than half of enterprise IT spending in key markets, including application software, infrastructure software, business process services and system infrastructure, could move to the cloud.
With these technology trends fueling its expansion, AWS has the potential to remain a source of strong and profitable growth for years to come. So rather than sell, long-term investors may want to take advantage of the recent decline in Amazon’s stock price to buy shares at a significant discount.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Joe Tenebruso has the following options: His $100 long call for January 2024 on Amazon. The Motley Fool invests in and recommends Amazon. The Motley Fool recommends Gartner. The Motley Fool’s U.S. headquarters has a disclosure policy.