Why Did Amazon Stock Drop?

Amazon (AMZN) stock tumbled about 10% during extended trading on April 28, after the company reported Q1 2022 earnings and issued Q2 guidance, which fell short of Wall Street expectations. The results also showed the e-commerce and cloud computing giant’s first quarterly loss since Jeff Bezos stepped down as its CEO. Amazon’s bet on electric vehicle maker Rivian Automotive (RIVN) contributed to the disappointing results.

Inflation, rising fuel prices, and the war in Ukraine are affecting businesses across industries. Amazon has had its fair share of challenges, and the Q1 report is a testament to that.

Q1 Numbers at a Glance

Revenue rose 7% year-over-year to $116.4 billion, coming slightly above the consensus estimate of $116.3 billion. The loss per share of $7.56 marked a sharp reversal from a profit per share of $15.79 for the same quarter the previous year, and missed the consensus estimate of a profit per share of $8.36. Amazon’s surprise loss was driven by a $7.6 billion decline in the value of its Rivian investment. Rivian shares have dropped more than 50% year-to-date.

Q2 Outlook

For Q2, Amazon anticipates revenue in the band of $116 billion to $121 billion. The guidance falls short of the consensus estimate of $125.55 billion. Amazon is also bracing for a possible loss or drop in profit. It expects to report between $1 billion in operating loss and $3 billion in operating profit for Q2, compared to an operating profit of $7.7 billion for the same quarter the previous year. Amazon plans to host its Prime Day annual shopping event in July. Last year’s event came in June.

CEO Comment

Amazon CEO, Andy Jassy, said, “We see encouraging progress on a number of customer experience dimensions, including delivery speed performance, as we’re now approaching levels not seen since the months immediately preceding the pandemic in early 2020.”

Wall Street’s Take

On April 28, Jefferies analyst Brent Thill reiterated a Buy rating on Amazon stock with a price target of $4,000, which indicates 38.3% upside potential.

Consensus among analysts is a Strong Buy based on 35 Buys, one Hold, and one Sell. The average Amazon price target stands at $4,086.36 and implies upside potential of 41.3% to current levels. However, shares have declined 15% year-to-date.

Stock Investors

TipRanks’ Stock Investors tool shows that investor sentiment is currently Very Positive on Amazon, with 3.8% of portfolios tracked by TipRanks increasing their exposure to AMZN stock over the past 30 days.

Key Takeaway for Investors

Amazon’s Q1 loss may be a surprise, but companies across the board are grappling with macroeconomic headwinds. However, Amazon’s business has mostly continued to do well even amid the challenges. The company’s important cloud business continued its strong growth, with sales there rising 37% year-over-year to $18.4 billion. 

The cloud business is Amazon’s profit machine, delivering an operating profit of more than $6.5 billion when the larger e-commerce business suffered a loss. If not for the Rivian hit, Amazon would have actually had a profitable Q1.

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