Amazon Nightmare Is Reminiscent of the Dotcom Collapse

It’s a dark year for Amazon. 

A year to forget. 

The e-commerce giant undoubtedly wants to put 2022 behind it and get out of what appears to be a real stock market nightmare.

The numbers speak for themselves: The Amazon stock closed the December 22 trading session at $83.79, which represents a 49.7% drop compared to December 31, 2021. This is the lowest closing level for the Amazon stock since March 12, 2019. Basically, the group, founded by Jeff Bezos, has completely erased all the gains during the two years when strict restrictions were put in place to limit the spread of COVID-19. 

During these two years, the economy more or less migrated online to the delight of Amazon  (AMZN) – Get Free Report, a juggernaut targeting both consumers and businesses, ranging from the sale of groceries to cloud computing services.

Out of the $1 Trillion Club

But the removal of the various anti-Covid-19 measures in 2022 coincided with a stock market rout of the group. Amazon was kicked out of the trillion club last month, the inner circle of companies with a market value of at least $1 trillion. In this selective club, there are only four companies left: Apple  (AAPL) – Get Free Report, Saudi Aramco, Microsoft  (MSFT) – Get Free Report and Alphabet  (GOOGL) – Get Free Report.

The Seattle, Washington-based firm’s market capitalization is nearly $855 billion at the time of this writing versus $2.1 trillion for the iPhone maker, $1.82 trillion for the Saudi oil giant, $1.78 trillion for the software juggernaut and $1.14 trillion for the parent company of Google.

The Amazon stock is thus about to experience the second bad year in its history after the year 2000, during which it had fallen by 79.6%. It was the bursting of the dot-com bubble and many experts, at the time, were predicting the bankruptcy of the group. Today things have changed and Amazon is seen as a titan. 

To properly assess the group’s stock market setbacks this year, one has to put it into perspective. The S&P 500 stock market index only lost 19.1% at last check, and the Dow Jones Industrial Average was down by only 8.1%. The Nasdaq 100 index, which consists primarily of technology stocks, is certainly down sharply by 33%, but still much less than Amazon.

Amazon is impacted by the economic slowdown which affects most of the tech companies, considered to be growth stocks. Price increases for goods and services are at their highest in 40 years in many Western countries, forcing central banks to raise interest rates, which makes access to credit expensive.

In the United States, many economists believe that the aggressive rise in interest rates will cause the economy’s so-called hard landing, aka a recession. The tech sector tends to perform well when the economy is healthy and confidence is high.

Consumers tend to spend on tech products and services when things are going well. But as soon as the economic situation deteriorates, they begin to be cautious, favoring necessary purchases, often to the detriment of tech.

Revenue Slowdown + Rivian

“There is obviously a lot happening in the macroeconomic environment,” Andy Jassy, Amazon CEO, said last month. “We’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets.”

The company, which is in the process of drastically reducing costs through job cuts and the cancellation of projects, expects a slowdown in its revenues in almost all its sectors of activity, even from the Amazon Web Services division, or AWS, which used to be a growth engine.

Amazon announced on October 27 that it expects fourth-quarter revenue between $140 billion and $148 billion, representing year-over-year growth of 2% to 8%. This was below analysts’ expectations of $155 billion. 

This forecast was particularly disappointing to investors, because it focused on the end-of-year holiday period, which is supposed to be a time when consumers tend to increase their spending.

Moreover, the big investment in the manufacturer of electric vehicles Rivian  (RIVN) – Get Free Report is turning into a nightmare. Rivian’s stock is down 81% this year. Amazon held a 17.34% stake in Rivian as of September 29. 

Rivian’s stock market crash likely translates into asset write-downs in Amazon’s financials.