What happened
Shares of Amazon.com (NASDAQ: AMZN) fell 7.5% on Thursday, furthering the recent plunge in the e-commerce-titan's stock price.
So what
E-commerce companies are struggling. That's the upshot of a slew of recent earnings reports from online retailers and marketplaces.
E-commerce businesses are facing a host of challenges right now. Inflation -- including sharply higher food, energy, and housing costs -- is taking a toll on the U.S. consumer. Shoppers in many other countries aren't faring much better, and that's forcing consumers around the world to pull back on their spending. And when they do shop, many people are doing their buying inside traditional retail stores, now that coronavirus-related restrictions in many areas have been lifted.
Add it all up, and we get a day like today. Leading e-commerce companies Shopify, Etsy, and Wayfair saw their stocks plunge by roughly 15%, 17%, and 26%, respectively. And industry leader Amazon.com sank along with them.
Image source: Getty Images.
Now What
Was the steep decline in Amazon's stock price warranted?
It's true that, like its competitors, Amazon's online retail growth is slowing. However, unlike its rivals, e-commerce is not Amazon's primary profit generator. Cloud computing is where it makes the bulk of its profits -- and that business is performing exceptionally well.
Amazon Web Services (AWS) saw its revenue surge 37% to $18.4 billion in the first quarter, while its operating income soared an even more impressive 57%, to $6.5 billion. With countless businesses set to migrate their operations to the cloud in the coming decade, AWS should remain a powerful source of profit growth for many years to come.
Investors appear to be focusing too much on Amazon's near-term e-commerce challenges and overlooking its massive expansion opportunity in cloud services. Today's sell-off, in turn, was likely overdone.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Joe Tenebruso has the following options: long January 2024 $2,000 calls on Amazon. The Motley Fool has positions in and recommends Amazon, Etsy, and Shopify. The Motley Fool recommends Wayfair and recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
