As we head into calendar year 2023, Amazon stock is trading at $85.25 down 8.3% since our first research brief was published on December 13, 2022 when the stock was at $93. The stock is down more than 50% this year and investors are wondering whether or not Amazon is a buy.
Heading into the holiday season, Amazon reported a year-over-year Q3 2022 increase in sales of 15% and 10% increase for the 9 months ended September 30, 2022. This despite negative impacts of foreign currency and a poor global economy. Driving this increase as an increase in sales in North America up 20% in Q3 and its cloud business which was up 27%.
Many analysts were expecting better results and the stock fell. As such, we felt it was time for us to to take a look.
What stands out to us is the GAAP operating income reported by Amazon which in Q3 was $2.5 billion down from $4.8 billion from Q3 last year. Both North America and its international business lost money. Perhaps unsettling, is that the North America business reported operating income of $880 million last year and reported a loss of $412 million and its international business double its loss to $2.5 billion. The decline in operating results was attributable to increase shipping and fulfillment costs.
So now what?
In summary, we believe it is and that the stock is undervalued for long-term investors and the current global economic environment makes it an ideal time for investors to start nibbling at its stock.
Amazon is the world's largest and most successful online retailers. It started as an online bookstore, but now sells a wide range of products, including electronics, clothing, household items, and more. Amazon also operates one of the most dominant providers of cloud computing to larger businesses, streams video and music to consumers and is about to launch one of the largest satellite constellations in the world.
As the leading online retailer, Amazon offers low prices and pushes the envelope on friendly return policies. Amazon has grown rapidly over the years and now operates in many countries around the world. In addition to its online business, Amazon has a line of consumer technology products, including the Amazon Echo and Kindle.
With inflation negatively impacting the majority of consumers, we believe the Christmas holiday season may be a little lighter than expectations. However, gas prices have fell so our hope is that in the short-term, operating margins will improve. Either way, as the stock is at this or lower levels, we believe that for a long-term investor, Amazon stock is something to put in your shopping bag of stocks for a long-time hold.
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