It’s a rare sight to see a trillion-dollar company like Amazon (NASDAQ:AMZN) fall more than 10% in just
one day, but that’s what happened on Friday when its shares crashed 14%. And through the first four
months of 2022, the e-commerce giant is now down a whopping 26%. That’s twice as bad as the S&P
500, which is having a bad year of its own, falling by 13% thus far.
The big reason behind Friday’s significant drop was the company’s first-quarter earnings where
expenses rose at a higher rate than revenue. As a result, Amazon posted its first quarterly loss since
2015. In the past, Amazon’s margins have never been terribly high. Its gross margins are less than 15%
and profit margins are usually not much higher than 5%. In 2017, the company netted just 1.7% of
revenue as profit.
Amazon has always been walking a fine line in terms of profitability, always staying on the right side of
things and keeping net income positive. But with more staff and investments into its fulfillment
operations due to a surge in spending due to the pandemic, that led to the business simply having too
much overhead. Operating expenses of $112.8 billion rose 13% year over year while net sales of $116.4
billion increased by just 7.3%.
Despite the disappointing results, there’s no doubt the company can and will adjust; it’s not suddenly a
bad long-term investment to own. Investors who are in it for the long haul can benefit from a prolonged
drop in Amazon’s share price and buying now could be a good move.