For years, Amazon seemed invincible, an e-commerce giant that made other companies shiver when it muscled into their markets. It helped Amazon stock soar into four-digit territory, and the company’s earnings reports often delighted investors.
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Now, after a year of troubling earnings reports, Amazon has launched a major restructuring, including plans to cut 27,000 employees from its workforce. Is Amazon stock a buy?
In late March, Amazon announced plans to slash 9,000 jobs. That’s on top of the 18,000 job cuts it announced in January.
“Given the uncertain economy in which we reside, and the uncertainty that exists in the near future, we have chosen to be more streamlined in our costs and head count,” Amazon Chief Executive Andy Jassy said in a written notice to employees when the layoffs were announced. He also suggested more layoffs are possible. The cuts mainly focus on Amazon Web Services, advertising, Twitch, human resources and its stores divisions.
Amazon is lowering its head count after going on a hiring spree during the Covid-19 pandemic. The company’s global workforce swelled to more than 1.6 million by the end of 2021. That’s up from 798,000 in the fourth quarter of 2019.
A Heightened Focus On Cost Savings
After the second round of job cuts, Arun Sundaram, senior equity analyst at CFRA, maintained a buy rating on Amazon stock.
“While some may view these job cuts as a sign of a gloomier macro outlook, especially as it relates to cloud computing and digital advertising, we believe investors will appreciate Amazon’s heightened focus on cost savings and free cash flow,” Sundaram wrote in a note too clients.
The most recent layoff announcements, in March, came after Amazon announced fourth-quarter results on Feb. 2. The company beat on revenue but missed on earnings, as its typically strong cloud computing unit failed to rescue the e-commerce giant.
Amazon reported adjusted earnings of 3 cents a share vs. expectations of 13 cents. Revenue of $149.2 billion slightly edged views for $145.7 billion.
Revenue climbed 9% from the year-ago period, and compared with 15% growth in the prior quarter. Its typically strong cloud unit showed that revenue decelerated. AWS sales jumped 20% to $21.4 billion, but that was below expectations and a deceleration from 27% growth in the prior quarter.
Optimistic About Long-Term Opportunities
“In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon,” Jassy said in written remarks with the press release.
In a note to clients after the earnings announcement, Jefferies analyst Brent Thill said, “We believe customers of Amazon Web Services are pausing, rather than canceling spend, which suggests a quick turnaround once macro uncertainty subsides.”
Also, Amazon continues to invest in package delivery by drones. In late December, the company began delivering orders by drones in California and Texas, in two small towns as part of a service it calls Prime Air.
The maximum payload for Prime Air is five pounds. Amazon says that 85% percent of its shipments fall under that weight. The goal is to ultimately fly out packages to customers’ homes within an hour.
“The promise of drone delivery has often felt like science fiction,” Amazon said in a news release. “We’ve been working for almost a decade to make it a reality.”
Amazon Continues Push Into Health Care
In late February, Amazon completed its $3.9 billion acquisition of One Medical, giving it a primary health care provider with in-person and virtual treatment as well as lab tests and programs for preventive care.
“We’re on a mission to make it dramatically easier for people to find, choose, afford and engage with the services, products, and professionals they need to get and stay healthy,” said Neil Lindsay, senior vice president of Amazon Health Services, in a written statement with the Amazon news release.
Amazon has made several forays into the health care market. In 2018 Amazon paid about $1 billion to acquire PillPack. That gave Amazon the ability to ship prescriptions around the country, making it a direct threat to the more than $400 billion pharmacy business.
Amazon has long-held ambitions to greatly simplify how consumers receive health care, but it remains a lofty goal that has yet to emerge as a moneymaking venture.
Technical Analysis Of Amazon Stock
In the stock market, timing is critical. So when you’re looking for stocks to buy or sell, it’s important to do the fundamental and technical analysis that identifies lower-risk entry points that also offer solid potential rewards.
The IBD Stock Checkup tool shows that Amazon stock has a weak IBD Composite Rating of 41 out of 99. When choosing growth stocks for the biggest potential, based on technical and fundamental criteria, try to focus on those with a Composite Rating of 90 or higher.
Amazon’s Relative Strength Rating now stands at 39 out of 99. Ideally, look for stocks with a rating of 80 or higher.
Amazon stock is not a buy at this time. The stock continues to hit resistance at the 200-day line, which has been a resistance level for about a year. Amazon is currently sitting on its 50-day line. Falling below that would be reason for caution. But holding above it and then piercing through the 200-day line and holding would be a positive signal.
Recognizing stock chart patterns is one key to the investment guidelines. IBD offers a broad range of growth stock lists, such as Leaderboard and SwingTrader.
Investors also can create watchlists, find companies nearing a buy point, or develop custom screens at IBD MarketSmith.
If you’re interested in buying large-cap stocks, in these articles you’ll find technical analysis of leading large caps to see if they are in or near a proper buy zone.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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