There’s still a lot to like about Amazon (AMZN) stock, even though the company’s coming off a hard 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 tumbled more than 40% throughout the year. The company’s been battling high inflation, rising rates, and a slow advertising market, and recently announced it would up the number of layoffs it was doing in its corporate workforce from 10,000 to 18,000.
Nevertheless, Amazon’s still headed 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 from here, today.”
The layoffs, Jones said are not bad news for the company’s outlook.
“It’s a very small chunk of their workforce,” he said, as Amazon’s total corporate workforce is about 300,000 strong. “We view it as, ‘They’re starting to look at operating income.’ This is an area that investors are increasingly looking at. They want to see Amazon give better guidance to these numbers as we progress through each quarter. So, while we don’t think it’s really going to move the needle materially, we like that they’re focusing on this and they’re making cuts.”
Heading into Q4 earnings, Amazon’s guidance has been weak, as the company in October said it was expecting to report between $140 billion and $148 billion in revenue to close out the year, missing analysts’ expectations.
For all the turmoil the company’s experiencing, Jones believes CEO Andy Jassy is playing his cards right, saying that Jassy has gotten caught in the crossfire of a macroeconomic downturn.
“You can’t fight the Fed,” he said. “You can’t fight macro, and I think this is very much a macro, Fed-driven market, and that’s really compressing multiples … more so than anything idiosyncratic to what Jassy is doing at the company.”
Jassy, who took the helm at Amazon in 2021, sounded off on the company’s layoff plans in a statement 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; however, I’m also optimistic that we’ll be inventive, resourceful, and scrappy in this time when we’re not hiring expansively and eliminating some roles. Companies that last a long time go through different phases. They’re not in heavy people expansion 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 some steam, while the company’s booming cloud unit Amazon Web Services (AWS) boosts its growth.
“It’s definitely still an AWS story,” said Jones. “I mean, we still want to see retail work. I think advertising is under-appreciated, but heading into a recession it’s hard to like advertising going into 2023. So, we really need to see AWS start re-accelerating. We need to see estimates start increasing from the retail segment.”
The truth is, the macro needs to even out before we know Amazon’s next moves will look like.
“We need to bottom out in terms of estimates and get more visibility on the macro situation,” said Jones. “Is the Fed going to continue to increase rates and by how much? I think once we get some visibility into the cost of capital, where rates are going, that’s when investors can start to pick 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 at @agarfinks.