Amazon, the e-commerce giant, has reported lower-than-expected second-quarter sales and provided weak guidance for the third quarter, causing a significant drop in its stock price. Despite this setback, there are several reasons why investors should consider buying Amazon stock on this dip.
In the second quarter, Amazon generated $148 billion in revenue, resulting in a per-share profit of $1.26. These figures represent an increase from the previous year’s numbers of $134.4 billion in revenue and $0.65 per share. Furthermore, the earnings surpassed the expected $1.03 per share. However, the company fell short of the projected $148.7 billion in revenue, and its third-quarter sales guidance of $154 billion to $158.5 billion also missed analysts’ consensus of $158.2 billion.
Despite these disappointments, there are three bullish realities that investors should consider. Firstly, Amazon’s second-quarter sales still grew by 10% year over year, which aligns with the anticipated revenue growth of 8% to 11% for the current quarter. In comparison, most companies struggle to achieve such growth rates. According to FactSet, the S&P 500 is expected to see only a 5% year-over-year sales improvement in the third quarter.
Secondly, Amazon’s bottom-line growth is impressive. The company’s high-margin profit centers, such as Amazon Web Services and its advertising operation, contribute significantly to its profitability. Amazon Web Services experienced nearly 19% sales growth in the second quarter, with a substantial portion of the $9.3 billion generated being converted into operating income. The advertising business, which monetizes the online shopping platform, reported $12.8 billion in ad sales, a 20% year-over-year increase.
Lastly, the current pullback in Amazon’s stock price may be more reflective of broader market sentiment than the company’s performance. Recent pessimistic headlines about a weakening economy and concerns over loan defaults and delinquencies have impacted investor confidence. This heightened bearish sentiment can leave stocks vulnerable to even minor negative news, such as Amazon’s revenue miss. However, such sentiment tends to pass quickly, and once it does, Amazon’s strength as a powerhouse company is likely to be recognized.
While it is uncertain whether Amazon’s stock has reached its ultimate low, the current 20% discount from its early-July high presents a compelling opportunity for long-term investors. The company’s high-margin growth drivers, including cloud computing and advertising, are expected to continue performing well, even in a potentially slowing economy.