The bonanza is over for now at Amazon (AMZN).
“Tightening our belt” are 3 words that I never thought I would hear from a Silicon Valley tech behemoth.
Yet, that is the shocking phrase that Amazon CFO Brian Olsavsky uttered as the man behind Amazon’s numbers spoke about the firm’s immediate future.
His less-than-sanguine outlook dovetails accurately with my prognosis for this earnings season that big tech will show weakness, but far short of the earnings apocalypse many were predicting.
That is why I am executing bullish trades on the dips for the best of class in tech.
Many investors are writing off 2022 as a year to forget, and tech companies are trying to make it over the line so they can pick a new play in the huddle.
The conditions and backdrop in Silicon Valley couldn’t have been worse in 2022.
2023 is poised to be a rebound year as liquidity loosens and supply chain bottlenecks ease.
Amazon used to glide through earnings with 5 stars.
Now they are stuck with quite a few mediocre businesses.
Amazon said it expects to post fourth-quarter revenue between $140 billion and $148 billion, representing year-over-year growth of 2% to 8%. Analysts were expecting sales to come in at $155.15 billion.
Amazon growing at 2%!
Yes, you heard it here first, and how the mighty and powerful have declined.
Under current CEO, Andy Jassy, who took the helm from founder Jeff Bezos in July 2021, Amazon has responded to hyperinflationary costs by aggressively cutting expenses across large segments of the company in recent months.
It shed warehouse resources, froze many experimental projects, shelved its telehealth service, and froze hiring for corporate roles in its retail business.
Amazon CFO Brian Olsavsky said the company cut its capital expenditures budget for this year by a third after it spent heavily over the last two years on things like ramping up its fulfillment and logistics network to deal with a lockdown economy.
When Founder Jeff Bezos resigned as CEO and took a back seat, Bezos knew that Amazon was peaking in the short term. He even sold some stock at the peak to cash in.
Jassy simply has a hard task on his hands to prove that he can reignite the tech company, but to give him the benefit of the doubt, he entered into a company dipping from its peak.
One bright spot that I didn’t mention was the strength of the digital ad business – it should arrive at a $10 billion per year business in a year or 2.
In totality, there is no way I can just throw AMZN onto the scrap heap.
The 10% selloff this morning, although warranted, is a great buy-the-dip entry point in the short term or long term.
That is why I executed a bullish call spread with strike prices of $87-$92 speculating that AMZN will stay above $92 by November 18.
This trade is even more soothing when the probability of the Fed slowing down rate hikes has dramatically improved in the short-term.
Any type of behavior that is perceived as pausing the tightening of liquidity is now equivalent to a “pivot.”
