Amazon (NASDAQ:AMZN) stock represents the king of e-commerce and a power player in cloud computing, yet the company just can’t seem to stay in its lane.
Investors should be concerned as Amazon’s CEO acknowledged that consumers are hesitant to spend. At the same time, it’s worrisome that the company plans to potentially spend billions of dollars on a venture that isn’t directly related to Amazon’s core businesses.
If any company could be the poster child of 2022’s Big Tech wreck, it would be Amazon. This was the darling of the markets for years, but now there’s a reckoning of sorts as high flyers are now coming down to earth.
As inflation and interest rate hikes wreak havoc on former Wall Street favorites like Amazon, is this really a good time to spend billions of dollars on a new venture? That’s a question that any prospective Amazon investor should consider, and unfortunately, there are no comforting answers here.
What’s Happening with AMZN Stock?
It’s no secret that AMZN stock is on a horrendous downtrend in 2022. Even with quick price bumps along the way, Amazon shares have fallen from $170 to less than $100 this year.
Does this automatically mean that the shares are a bargain? Don’t make any assumptions, as Amazon’s trailing 12-month price-to-earnings (P/E) ratio is still quite lofty at 88.43. So, there’s no screaming bargain to be found here.
Frankly, it’s awfully difficult to give AMZN stock anything higher than a “D” rating when even the CEO is basically admitting that consumers aren’t spending.
“Consumers are spending, but they’re being careful about trying to stretch their dollar,” Amazon Chief Executive Andy Jassy acknowledged recently.
“People care a lot about getting a bargain right now,” Jassy added. This is a polite way of saying that American consumers are tightening their financial belts due to high inflation. That’s not good news for Amazon, which depends on robust consumer activity.
Amazon Plans to Spend Billions
If consumers are tightening their purse strings, you’d think Amazon should do everything it can to reduce expenditures. The company is laying off workers, though this could potentially have a negative impact on areas like customer service and logistics.
Meanwhile, Amazon intends to spend over $1 billion annually to produce movies to be released in theaters. Sometimes it’s fine to venture out of one’s comfort zone, but this is an ill-timed gamble as consumers cut back on their spending.
Plus, now Amazon will have to compete with a slew of well-established cinema companies. Just because Amazon is an e-commerce king, doesn’t mean that the company can easily take over any and every market.
What You Can Do Now
There’s almost a sense of hubris in Amazon’s management spending billions of dollars to compete with movie-market giants. It would be better for Amazon to stick to its core businesses and focus on strategically reducing expenditures.
Furthermore, AMZN stock doesn’t look like a bargain as its valuation remains quite elevated despite the share-price decline. Therefore, Amazon gets a “D” rating now and investors can choose to find other opportunities for the time being.
On the date of publication, Louis Navellier had a long position in AMZN. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.