Once a Wall Street darling, Amazon has lost some of its luster this year. The e-commerce giant’s stock fell more than 40%, significantly underperforming the S&P 500, which fell about 15% over the same period. That’s not all. In a memo to staff on Friday, CEO Andy Jassy said the company had made the “difficult decision to cut a number of positions” – just a week after the New York Times reported the company was planning to cut approximately 10,000 jobs. The layoffs come as Jassy steps up its efforts to control costs, breaking with the earlier “growth at all costs” philosophy espoused by founder Jeff Bezos. Nevertheless, Amazon remains one of the largest companies in the world. Even with its stock price plummeting this year, the company is still valued at nearly $1 trillion. On Thursday, two market professionals squared off on CNBC’s “Street Signs Asia” to argue for and against buying the stock. Long-term investment story Veteran tech investor Gene Munster believes that “there’s no company like Amazon” when it comes to e-commerce and logistics. The founder and managing partner of Loup Ventures acknowledged that the company has been going through a “difficult period” lately, and that things could remain difficult for the first half of 2023. But he thinks investors will look beyond the present. and will see Amazon as a long-term investment story. “Investors are looking to the future, and ultimately I think this is a growth story. Despite the law of large numbers, this company operates in large addressable markets. So not only earnings growth will be enough to support the long-term bull case – and I would put that in a 10% to 15% category over the next few years – but the important factor here is also earnings growth, the possibility of improve margins,” Munster said. That earnings expansion potential has been key to Amazon’s valuation, he added. “We both know that’s been the carrot that’s always been retained with regard to Amazon. This is why it trades at such a high multiple. It’s not about revenue growth. The multiplier is more of an increase in profits,” he said. Slowing growth But Tom Forte, managing director and principal analyst at DA Davidson, noted that Amazon is now a company of mature e-commerce – which requires $4.7 billion in additional revenue just to post one percentage point revenue growth.He pointed to slowing growth in Amazon’s cloud computing segment, which he has described as “a higher-margin, faster-growing business” compared to its retail business. This will likely impact Amazon’s earnings growth over the next 12 months, he said. added. While Amazon is now pursuing new growth opportunities, some are not working out, according to Forte. He pointed to Amazon’s heavy spending on content creation, such as its “The Lord of the Rings” series of $715 million – the most expensive TV show of all time. Forte noted that the series has an approval rating of only 39% on online review platform Rotten Tomatoes. But he’s excited about one of Amazon’s new growth pillars: healthcare. On Tuesday, the company unveiled “Amazon Clinic,” its new telehealth service. It comes as Amazon seeks to deepen its presence in the healthcare sector, just months after acquiring primary healthcare provider One Medical for around $3.9 billion. “I believe healthcare is a tremendous opportunity. It’s a trillion-dollar global market… Amazon can do a lot of things there. What worries me though is that there will be an air pocket in revenue growth until health care kicks in, and that could lead to weak results over the next 12 months or even longer,” Forte said. “So unfortunately it’s not the Amazon in 1997 or 2007 or even 2017. It’s going to be a lot harder for them to grow in the future and they need that growth to maintain their premium multiple. I think that’s going to weigh on his actions more than anything else,” he added. But Loup Ventures’ Munster believes the Amazon will return to its “5% plus” baseline growth in the next six to 12 months. “[Amazon] is critical to how we live our retail lives, but they have other growth initiatives on top of that,” he said. – CNBC’s Annie Palmer contributed reporting
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