Amazon.com grew from being an online bookseller at the beginning of the internet era to being an unstoppable force that drove many brick and mortar companies out of business. During the Covid Pandemic when the world was in lockdown Amazon.com was a lifeline for many people. Their sales soared and they employed more and more people while the rest of the business world shut down. Not surprisingly, Amazon stock rose from the $90 to $100 range where it had been trading for a year and a half to the $160 to $180 range where it stayed until the end of 2021. We at Top Gun Options referred to the stock as the Death Star due to its unstoppable performance. But by the end of 2021 two things were happening. The world was emerging from lockdown mode and the economy started to get the jitters due to inflation and the risk of a prolonged recession. So, what is happening to the Amazon Death Star?
Amazon Makes News as First Company to Lose $1 Trillion in Market Cap
A rule in the markets as in life is that what goes up can and often will go down as well. Bloomberg reports that Amazon.com has lost $1 trillion in market value from $1.88 trillion to $879 billion from July 2021 to November of 2022. A combination of consumers resuming pre-pandemic spending habits, rising costs, further reduced consumer demand as inflation and a looming recession cuts family budgets, and a market shedding excess value have driven the stock down. Interestingly, the stock now trades at the high end of the range where it traded for a year and a half prior to the pandemic shutdowns.
What About Amazon Going Forward?
While the stock is down due to market factors, higher costs, etc., Amazon.com revenue is up this year and has been up every year since the company was founded as noted in a graph by Macrotrends.
In other words the Amazon.com business model is still working. This is not Eastman Kodak whose business model became irrelevant when folks started using digital cameras. There are two ways to trade options on Amazon.com these days. One is to get into the trenches and trade the daily and weekly ups and downs caused by Fed interest rate pronouncements, news from the war in Ukraine, projections about how mid-term election results will affect the market and the rest. The other is to look for a long term Amazon.com price recovery and consider using a synthetic stock approach with LEAPS.
Where Is the Amazon.com Market Bottom?
Amazon.com is a tech company and a retailer. Its largest business segments are its online store and reseller services. These are susceptible to shrinkage as consumers reduce spending. Its web services are at risk to the degree that businesses and individuals cut spending. Its advertising services are likewise at risk from reduced spending by business customers. To the degree that the Fed pushes too hard and too long by raising interest rates in their quest to stem inflation these segments are all at risk of seeing lower revenue. However, if you look at the graph from Macrotrends, as of this point, Amazon.com revenue has not gone down. Rather the stock market has discounted the stock along with the rest of the market in anticipation of trouble ahead. As we say repeatedly, the economy is not the market and the market is not the economy. It all comes down to the fact that this is not a good time to be trading the markets alone. This is the time to consider joining one of the trading squadrons at Top Gun Options where we routinely print money no matter which direction the market or the Death Star is headed.