The 2022 bear market was brutal. The Nasdaq Composite Index ended last year down by about 33%. However, it has been recovering nicely in 2023: For the last 12 months, it’s now down just 9.6%. Amazon (AMZN 1.57%), though, underperformed the index across both of those periods, and even after a modest bounce so far in 2023, its stock is down a whopping 32% over the past 12 months.
While it is difficult to time the market, falling inflation and resilient economic data could represent the light at the end of the tunnel. Let’s discuss two reasons Amazon could be a great way to bet on a looming new bull market.
The core businesses
Amazon’s fourth-quarter results were lackluster. While revenue grew by 9% year over year to $149.2 billion, net income fell from $14.3 billion to just $278 million — and this was far from a one-off problem. The tech giant lost money in two out of the four quarters of 2022 because of ongoing challenges in its core e-commerce and cloud computing businesses.
While Amazon’s e-commerce revenue continues to grow, margins are deteriorating because of skyrocketing fulfillment and delivery costs. Much of this has to do with inflation and pandemic-era overexpansion. The company has also seen an erosion in its cloud computing segment as enterprise clients look to trim costs in this period of economic uncertainty. The good news is that both of these challenges look temporary.
Inflation is already falling as the Federal Reserve’s rate hikes impact the economy, and fuel costs have dropped. Further, CEO Andy Jassy believes that the cost-optimization in the cloud industry will only last for the “next couple of quarters” — likely because Amazon Web Services helps companies handle the data they need to grow. While Amazon’s core businesses wait to rebound, investors should pay close attention to its new growth drivers.
Healthcare and digital advertising?
Amazon’s scale and network effects helped it dominate e-commerce and cloud computing. And these strengths can also provide it with advantages as it pursues new opportunities in areas like healthcare and digital advertising.
In the fourth quarter, its ad business grew 19% to $11.6 billion. With its shopping-motivated user base of more than 300 million active accounts, Amazon has plenty of data to use for targeting ads, which could allow it to charge higher rates for ad placements.
The company is also betting on healthcare through One Medical, which it acquired for $3.9 billion in February. Amazon already has a toehold in the healthcare industry through its Amazon Care brand. This latest deal is likely designed to expand its prescription-delivery service and primary care network.
While it is too early to know for sure, healthcare could eventually become another driver of growth and diversification for the company.
A great way to bet on a rebound
It is impossible to know exactly when Wall Street will enter another sustained bull market. But if history is anything to go by, what went down will eventually rise up. Companies like Amazon face significant challenges. But their substantial share-price declines in 2022 have priced in some of those risks.
Investors can look forward to a recovery in Amazon’s e-commerce and cloud computing businesses while digital advertising and healthcare potentially power its next leg of growth. The company looks like a great way to bet on a stock market rebound.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com. The Motley Fool has a disclosure policy.