Amazon stocks take a tumble amidst slow-moving holiday sales

  • Major US tech company stocks such as Alphabet Inc, Meta, and Microsoft took a dive on Wall Street on Friday.
  • Amazon stocks fell roughly by 8 percent owing to rising spending than revenue collected.
  • Amazon’s value fell slightly below 1 trillion USD as the company braces for a slow holiday season. 

After a relatively sluggish holiday season among the looming crisis of widespread recession and unemployment in various parts of the world, Amazon has released a statement.

Rebutting debates of its spending habits versus the estimated profits, the analyst’s forecast appears to be pretty grim for the multimillion-dollar company.

The stocks suffered a great tumble of around 11 percent on Friday shocking Wall Street onlookers. However, it seems to be a bad week for most of our well-known big tech companies.

Starting this week off on a bad note Microsoft, Alphabet, and Meta stocks were battered severely leading to gloomy forecasts for the rest of the week. They collectively gained only around 1.2% and 3.1%.

Apple Inc, however, was the only organization that shone light amidst a crowd of the Big Tech space. The company reported revenue and profit that topped analysts’ estimates. Other Big Tech stocks are on track to lose more than $400 billion this week.

How did it come to this? 

Amazon took a major hit on the stock market on Friday and rightly so as its value fell slightly below $1 trillion, last down 8.4% at $101.66. This comes after hitting the lowest price since April 2020.

Amazon recorded terrific sales during the pandemic era and was expected to carry on the same high according to official estimates. But much to the dismay of analysts, the people are returning to pre-pandemic habits and the purse is indeed getting tighter.

As explained by analysts, the plunge in stocks is an aftermath of a number of factors. Today corporate America is under siege of soaring inflation which has pushed the U.S. Federal Reserve to enact a series of rate hikes that have bruised markets.

Coupled with macroeconomic factors, including changes in foreign exchange rates, primarily a strong US dollar have made the company’s sales in other currencies less lucrative. As a result, the company faces a reduction in its revenue during the quarter by about $5 billion.

How is Amazon overspending?

There is an incredulous rise in spending on behalf of the tech giant. The company’s spending on research and development surged by 35%. This is partly attributed to bigger stock payouts Amazon is making to recruit and retain employees in a competitive market for technologists.

Furthermore, the number of full- and part-time employees rose 5% to more than 1.54 million. Despite Chief Executive Officer Andy Jassy’s pledge to cut costs, Amazon’s expenses jumped almost 18% to $125 billion.

This marked the fifth consecutive quarter the company’s expenses increased faster than revenue growth. Matt Britzman, an analyst at Hargreaves Lansdown believes that Amazon went too big, too soon, post the pandemic and needs to learn to put the brakes on and regain control of costs.

Plan to cut down costs 

The holiday season at the Amazon warehouse used to be a tireless affair with workers shuffling through day and night to keep up with the pace of orders. However, with the pressure on people’s wallets and the rising costs at Amazon, changes become inevitable.

Speaking on a call with journalists on Thursday, after the results were released, Chief Financial Officer Brian Olsavsky says the company plans to “tighten its belt”.

The plan of action remains to delay warehouse openings, freeze hiring in its retail group and shut down experimental projects. Amazon also hopes to wind down products and services in areas where the company determines its money would be better spent elsewhere.

Foiled estimates

In general, the holiday season looks bleak for the US markets. Adobe Inc. forecast that US e-commerce sales in November and December will rise just 2.5% from the prior year.

Amazon had projected that revenue would be $140 billion to $148 billion in the fourth quarter, far short of analysts’ average estimate of $156 billion. Furthermore, profit was 28 cents a share, compared with 31 cents a year earlier.

Amazon Web Services(AWS), the most profitable branch of the tech company so far also showed slow progress. Sales at AWS increased 27% to $20.5 billion while analysts had projected a minimum of $21 billion.

It was the cloud unit’s slowest year-over-year growth since Amazon began breaking out the division’s performance in 2014.

Meanwhile, the Advertising unit revenue rose 25% to $9.5 billion, roughly half the growth rate it has posted on average since Amazon began reporting the division’s results. Online store revenue rose 7.1% to $53.5 billion.

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