Even experienced investors have been hit by a ground-shaking first quarter. Even hedge-fund legend Bill Ackman has been put off-guard.
There''s no doubt about it: The tech boat is in some rocky waters. The question is: Should investors stay onboard and wait out the storm? Or should they take the remaining life rafts and abandon their ship?
Figure 1:Amazon Stock: Should You Buy It in May?
For The New York Times, Dave Sanders
So Much for Building Momentum in May
Reportstock is mostly suffering from its bleeding e-commerce segments. What''s causing this bloodbath? External cost pressures are causing this bloodbath, according to Amazon''s Brian Olsavsky. These include rising inflation, the Omicron strain in China, the war in Ukraine, and increased labor expenses.
For example, the cost to ship in overseas containers has more than doubled in comparison to pre-pandemic rates. And the cost of gasoline is roughly one and a half times higher than it was even a year ago, according to the author.
By that, even the largest bulls in the Amazon Bull Club must realize that these issues will not fade this month. In fact, Olsavsky expects the additional costs to last for some time.
Investors should not buy AMZN in hopes of a breakthrough in May. The stock price may also fall.
A Totally New Scenario
Amazon has never been there during a high inflation period, according to the Bank of Americas. We are witnessing a first-time event.
A lot of people believe that each analyst must compose their own argument. One of the most common questions is whether the Seattle-based company had pricing power or not. The answer appears to be yes.
Online retailing is intrinsically a low-margin business. It was anticipated that Amazon would be able to leverage its titanic size and Prime benefits to combat this issue.
Instead, the business''s strategy is to keep product prices as low as possible and by charging an inflationary fee from their fulfillment by Amazon (FBA) sellers.
It''s still unclear if inflationary expenses will rise or down, and how long they''ll last. So, we implemented that fuel and inflation surcharge for the first time, according to Amazon''s head of investor relations.
A Gloomy Near Future
The macroeconomic struggles affecting Amazon are unlikely to last until soon. And the company''s efforts to minimize its costs increases (such as increasing the Prime subscription price and FBA fees) suggest the company may not have much pricing power.
This leads to a difficult future. That can be seen in Amazon''s second-quarter forecast: Net sales are between $116 billion and $121 billion (3-7% increase), which is significantly lower than Wall Streets'' previous estimate of $125 billion and operating income anywhere between a $1 billion loss and a $3 billion gain.
Is May the best time to buy? It''s time to get back to our first question: Is May the time best? Only the future can say whether Amazon bulls were brave or ignorant, and whether bears were cowards or correct.
The e-commerce giant will have a very difficult month on may, either way.
(Disclaimers: this is not investment advice. This author may be long one or more stocks mentioned in this report. Aside from the article, affiliate links may be included. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven