Is Amazon a Bad News Buy?
Higher inflation has been weighing on Amazon's (NASDAQ: AMZN) e-commerce business for about a year. But the company's other big business -- cloud computing services -- has defied the pressure, continuing to grow both revenue and operating income.
In Amazon's third-quarter earnings report this week, though, Amazon Web Services (AWS) showed that it isn't immune to the current economic troubles. AWS still grew at a double-digit percentage rate, but its growth fell short of analysts' expectations. As a result, the stock slid 7% in Thursday's trading session, and lost another 6.8% from there on Friday. That brought this year's decline to about 38%. Does this latest AWS news suggest that it's time to give up on Amazon -- or is this troubled stock a bad news buy?
First, let's talk about the role AWS plays in Amazon's earnings picture. It's a pretty important one. In recent years, AWS has driven the bulk of Amazon's profits. In 2021, it accounted for 74% of Amazon's total operating income. Cloud services are, by nature, a much higher-margin business than e-commerce. Amazon's overall operating margin stood at 4.4% a year ago, while AWS had an operating margin of about 30%.
Source Fool.com
