Amazon (AMZN, Financial) has been charting a path to recovery during this difficult time that involves diversification, cost reduction and strategic partnerships. To get back on its feet in the wake of the economic slowdown and high inflation levels, Amazon is taking extreme steps such as reducing staff and winding down certain projects.
On the positive front, Prime Video appears to be rolling out its own sports streaming application for users looking for an easier way to access their favorite teams and competitions. Amazon Web Services have also been performing incredibly well, giving the company an additional boost of revenue that could help with business stability in the low-margin e-commerce business in these uncertain times.
Despite the unpredictability of the markets in today's environment, I believe Amazon stands out as an attractive stock because it should be able to rebound quickly once economic growth returns and inflation eases.
Amazon is looking to diversify its revenue further
On Jan. 5, Amazon announced the much-awaited launch of Ring Car Cam, a security dashboard camera, at the 2023 Consumer Electronics Show. The device is a significant production of Ring, which was acquired by Amazon a few years ago. It records views from inside and outside the car and has a motion detector to alert of any outside disturbances. The same day, the company reported a partnership in the electric vehicle industry with EVgo (EVGO, Financial). Electric vehicle drivers will be able to use Amazon's Alexa app to locate electric vehicle charging stations and perform other functions using the app.
Amazon held up its status as a tech behemoth when it introduced Prime Air, a drone delivery service, in late December in select regions of California and Texas. A report by Allied Market Research highlighted that the drone delivery market, valued at $8.20 billion in 2021, will have a compound annual growth rate of 20.8% from 2022 to 2031, and its value could reach $53.32 billion by 2031.
Amazon is one of the few companies holding the Part 135 certification required to operate drone deliveries. Early entry into the drone package delivery market will likely benefit the company massively.
Amazon's cost-cutting plan should reduce investor fears
Some may think that Amazon's layoff wave is an indication of weakness The e-commerce giant plans on laying off 18,000 employees starting Jan. 18. Amazon CEO Andy Jassy sent an email to employees to inform them that the job cuts are due to the current state of the economy. The figure is fairly high compared to the previous figure of 10,000 job cuts that were announced in November 2022. This step is one of many that the retail giant has taken to cut colossal losses it experienced since the end of 2021. However, I think it's a necessary downsizing step for a slower economy, and the layoffs will eventually help the company's margins.
To curtail its losses, the company has also sublet, shut down, or halted operations of dozens of warehouses. Additionally, it shut down Amazon Care, a joint venture with Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) and JPMorgan Chase (JPM, Financial). Shutting down such projects signifies that the company is serious about saving costs.
Amazon has started to market excess cargo space on Prime Air. In December 2022, the company hired professionals to help market the extra space and attract clients. Moreover, the company plans on utilizing empty flights to import material. For example, cargo jets from Hawaii, Alaska and New Zealand can import things like flowers, pineapples and salmon. Furthermore, Amazon has moved to cut down on its fleet by opting not to renew leases with Air Transport Services Group (ATSG, Financial).
Amazon's new sports app is expected to enhance its Prime ecosystem
Amazon has consistently been a leader in the e-commerce industry, but its Prime ecosystem has now grown beyond just e-commerce. This strategy is a major factor in the success of the company, growing Prime to more than 200 million subscribers.
To amplify Prime's already-dominant presence, Amazon reportedly plans on introducing an app to stream sports content - a move that looks set to further increase revenue due to its ownership of streaming rights for the National Football League's Thursday night games and Premier League soccer matches in the United Kingdom. There's no doubt that this new venture will be hugely popular and add another successful layer to Amazon's worldwide success story.
Amazon Web Services continues to gain lucrative contracts
Amazon Web Services is undoubtedly leading the way in the Cloud computing market, and it was responsible for 100% of Amazon's operating income in the third quarter of 2022. Its recent success in securing two major government contracts further confirmed this impressive feat.
On Dec. 19, 2022, AWS won a five-year U.S. Navy contract worth $723 million. Two weeks before that, AWS had already scored a portion of the $9 billion contract for the Joint Warfare Cloud Capability (JWCC) project by the Department of Defense. AWS has proven to be an innovative and reliable force in Cloud computing.
Takeaway
It has been a challenging few years for Amazon. Still, the massive corporation is no stranger to turbulence and continues to pursue cost-saving initiatives and wise investments that will strengthen it in the future.
Speculations are swirling about when the company will start seeing consistent profits again. Personally, I think that the first half of the year may still be slow, but Amazon is still a viable long-term play. It seems unlikely that it will begin a recovery before mid-2023, yet once the economy recovers and inflation slows, Amazon should have a chance to shine again.
