Why Is Amazon Stock Falling and is it a Buying Opportunity for Long-Term Investors? | AMZN Stock

Intro hey everyone Amazon reported quarterly Financial results that set the stock price down from $184 per share to $174 per share as of this recording in the aftermarket hours on Thursday August 1st so why did Amazon stock price fall following the earnings release I'll highlight the reasons why in this video I'll also update and let you know if this is a buying opportunity I've had Amazon rated as one of my top stocks to buy and and you'll want to know if I'm going to change that recommendation and I'll let you know in this video I'll let you know if I'm keeping it a buy a top stock to buy Etc so let's take a look I want to thank the mle fool for sponsoring this video visit full.com parev for the 10 best stocks to buy now AMZN Stock all right so in the aftermarket hours you can see Amazon stock price falling from over $184 per share to $174 per share of course the stock was down in Reg market trading as well as the market overall was down significantly today on the back of weaker than expected macroeconomic news AMZN Earnings still if you would have told me that Amazon's web services segment sales would increase by 19% and the stock price would fall I would say that was not likely but it did happen so let's take a look overall net sales increased by 10% to 148 billion and as I mentioned AWS segment sales increased by 19% to 26.3 billion Amazon web services segment is the most profitable part of Amazon's business overall and it's encouraging to see that that's the segment that's outgrowing the rest of the business operating income jumped to 14.7 billion almost doubled the 7.7 billion the company reported in the same quarter last year and of course the AWS segment generated the vast majority of of those profits bringing in 9.3 billion in operating income compared to just 5.4 billion in the second quarter last year it was also encouraging to see that Amazon's International segment was profitable again that's two straight quarters for profitability for Amazon's International segment operating cash flow jumped by 75% to 108 billion for the trailing 12 months compared to 61.8 billion for the trailing 12 months ended June 30th I've got something to say about Amazon's cash flow prospects going forward that you're not going to want to miss a little bit later in the video so stay tuned Amazon CEO saying that companies continue to modernize their infrastructure and move to the cloud while also leveraging new generative AI opportunities at AWS continues to be customers Top Choice and the growth in the AWS segment suggests that Amazon was strong in the quarter now others like Google and Microsoft already reported their Cloud Revenue growth and they were slightly ahead of Amazon in terms of cloud Revenue growth but that gain was narrower than usual over the last few quarters or over the last eight quarters let's say uh Microsoft and alphabet had been making greater inroads in Cloud segment revenue and that Gap narrowed in the most recent quarter as Amazon the leader in the industry by far retook its advantage and harnessed its advantage and really caught up to the growth rates of those other smaller providers all Third Quarter Guidance right so one of the reasons Amazon stock price is falling is because of the expectations going forward the third quarter Revenue Guidance the company saying it expects third quarter Revenue in the range of 154 to 158 billion in other words that would represent 95% growth at the mid point that was slower than expected analysts on Wall Street were expecting more than double- digigit Revenue growth forecasted for amaza operating income is forecasted in the range of 11.5 billion to 15 billion and that would be ahead of the 11.2 billion reported in the same quarter last year although the rate of increase would be significantly smaller I highlighted earlier in the video that Amazon's operating income in the current quarter was almost double that of the same quarter last year year now those rates of increase are slowing down as Amazon is comparing to quarters in the prior year that had significantly higher profit and so those comparisons are tougher all right another reason why I Capital Expenditures think Amazon stock price is falling is what I alluded to earlier regarding Amazon's cash flow and I want you to pay attention to what I have highlighted here this is Amazon's investing activities and purchases of property and equipment in other words this is its capital expenditure and you'll notice for the 3 months ended June 30th in 2024 its purchases of property and Equipment jumped to 17.62 billion that was up from 11.45 five billion in the same quarter the prior year so this is a more than 50% increase in purchases of property and Equipment now you'll recall throughout 2024 one of the reasons why I've been bullish on Amazon stock is because the company had been growing into the investment M it made earlier in the pandemic remember a few years ago I was highlighting that Amazon overinvestment demands they didn't want the customer experience to worsen given the increase in demand fast forward to today and fast forward to 2024 those over Investments Amazon was able to grow into so they didn't need to invest as much because they did so much in 2020 21 and 22 but now it looks like those times are over now it looks like in order to grow Amazon needs to invest again it needs to have another wave of increase in capital expenditure which you're seeing here this is two straight quarters of increase here and if you look at at the six-month comparison over the last 6 months capital expenditure or purchases of property and Equipment are up to 32.5 billion from 25 billion in the same time last year but that rate of increase was more pronounced here in the most recent quarter suggesting that Amazon's going to ramp up spending in this category and that makes sense because its competitors in the area are also increasing Capital expenditures Microsoft alphabet meta platforms and others have all announced that they're going to spend tens of billions of dollars wrapping up their AI capabilities and so Amazon is not expected to be left out of that they too want to invest in their AI capabilities and that's reasonable given that they're seeing that increase that acceleration in AWS segment Revenue they increased that segment by 19% and it's the most profitable part of its business so this is understandable still investors are a little bit disappointed and they were hoping that Amazon had more Runway to go before they really had to accelerate investments in property and equipment in North America Segment more good news from Amazon their revenue growth rates continue although at a decelerating rate so you'll notice here I have highlighted the North America segment net sales growth you could see decelerating rates of growth Now 133% growth down to 12% and then in the most recent quarter 9% and along with with those decelerating growth rates you have decreasing operating profit margin from 6.1% down to 5.8% down to 5.6% investors do not like to see these kinds of downward Trends similar story with the international segment where Revenue growth is decelerating from 133% to 11% to 10% and the operating profit margin down from 2.8% to 0.9% however the bright spot was the AWS segment where Revenue growth is actually accelerating going from 12% to 133% to 177% to 19% growth and if you're an Amazon stock investor and you had to pick one area of accelerating growth you want it to be the AWS segment because look at the operating profit margin in this segment 35.5% in the most recent quarter sure was down from 37.6% from the previous quarter but still at 35% it's more than 35 times as profitable as the international segment and roughly seven times or six times as profitable as the North America segment so if you had to pick one segment for accelerating Revenue growth this would Employee Count be it another item that disappointed me was the employee count if you remember from my preview of Amazon's earnings video I highlighted this is something I'm going to be looking at is employee growth and you notice that employee growth accelerated again they were on a decreasing employee count remember they let go of tens of thousands of employees and you notice they had a 10% decrease year-over-year in employees and then it was just a 4% decrease and then just a 3% decrease and then just a 1% decrease and now you've seeing the growth here 4% increase and now again a 5% increase and I was looking at this in combination with their purchases of property and equipment to determine if Amazon indeed needed to invest in order to capture growth or was Amazon still able to capture growth opportunities without needing to invest more in property and equipment and in people in personnel and the answer I got is no they were not able to grow without investing they needed to invest they needed to spend more and that's partly why the stock price is down is investors are now coming to the realization that Amazon is done growing into those over investments from 2020 and 2021 and 2022 and now they need to invest more if they want to continue on that growth trajectory so it's not terrible news it's just a little bit of a disappointment because if they didn't need to spend and they could have just continued growing into those Investments that would have meant its operating profit margins would have continued expanding because they're growing Revenue but they're not increasing their spending and so that's creating a bigger gap between revenue and expense and more profits the bottom line still it's encouraging to know that Amazon has great growth opportunities that it's investing to capitalize in and most notably artificial intelligence which is a huge opportunity for Amazon Conclusion and others so following the earnings release Amazon is trading at a forward price to earnings of 31.8 4 and I still think that Amazon is a top stock to buy so to update my recommendation of avaza stock I'm reiterating that I think it's one of the best stocks to buy today before I let you go let me tell you about the greatest deal on YouTube with just a click of a button you can get free financial analysis from a professor with Decades of investing experience so what are you waiting for hit that subscribe button and I'll see you again soon