There is still a lot of upside about Amazon (AMZN) stock, even though the company has had a rough year, JMP Securities Equity Research Analyst Nick Jones recently told Yahoo Finance Live (video above).
Amazon had a rough 2022, one in which the company’s stock plummeted more than 40% year-round. Facing high inflation, rising rates and a sluggish advertising market, the company recently announced it will increase the number of layoffs of its corporate staff from 10,000 to 18,000.
Yet Amazon is still moving in the right direction, according to Jones. “We like Amazon investing in future technology, we like them investing in growth,” he said. “For us, we don’t think it has to happen. We like the stock here today.”
The layoffs, Jones said, aren’t bad news for the company’s prospects.
“It’s a very small portion of their workforce,” he said, as Amazon’s total workforce is about 300,000 strong. “We think of it as, ‘They’re starting to look at the bottom line.’ “This is an area that investors are increasingly looking at. They want Amazon to better guide these numbers as we progress each quarter. So while we don’t think it will change the needle materially, we like that they’re focusing on that and they’re making cuts.”
Heading into Q4 earnings, Amazon’s expectations were weak as the company said in October it expected to report between $140 billion and $148 billion in revenue to close the year, beating analyst expectations .
Despite all the turmoil the company is going through, Jones believes CEO Andy Jassy is playing his cards right, saying Jassy has been caught in the crossfire of a macroeconomic downturn.
“You can’t fight the Fed,” he said. “You can’t fight macros, and I think this is really a macro, Fed-driven market, and that’s really compressing multiples… more than anything quirky about what Jassy is doing at the company.”
Jassy, who took over at Amazon in 2021, chimed in a statement about the company’s layoff plans earlier this month.
“Amazon has weathered uncertain and difficult economies in the past, and we will continue to do so,” Jassy wrote on Jan. 4. “These changes will help us pursue our long-term opportunities with a stronger cost structure; I’m also optimistic that we’ll be inventive, resourceful and sloppy during this time when we’re not massively hiring and cutting some positions.” that last for a long time go through different stages. They’re not in heavy-duty extension mode every year.”
‘Definitely 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 pick up steam as the company’s fast-growing Amazon Web Services (AWS) cloud unit drives growth.
“It’s definitely still an AWS story,” Jones said. “I mean, we still want retail to work. I think advertising is undervalued, but heading into a recession, it’s hard to like advertising in 2023. So we really need to see AWS start to accelerate again. see estimates starting to rise from the retail segment.”
The truth is that the macro needs to level out before we know what Amazon’s next steps will look like.
“We need to bottom out on estimates and gain more insight into the macroeconomic situation,” Jones said. “Is the Fed going to continue to raise rates and by how much? I think once we get some insight into the cost of capital, where rates are going, that’s when investors can put their heads up and think about what the back half of ’23 and ’24 looks like.”
Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter @agarfinks.
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