What’s happening with Amazon stock

Amazon (NASDAQ:AMZN) stock fell yesterday, following some rather odd news: Analysts from J.P. Morgan issued a note that named Amazon the bank’s “top internet idea.”

Amazon stock fell 4% through 12:30 p.m. ET. [To find out why we still love Amazon stock, read 2 Growth Stocks to Buy This Year].

Why we care

Is that logical?

Yes, somewhat. According to J.P. Morgan’s note, the Department of Commerce estimated fourth-quarter e-commerce sales in the United States at $257.6 billion. That estimate was below J.P. Morgan’s projection of $270 billion, which appears to be awful news and may have spooked investors.

But here’s the catch: This isn’t “breaking” news. The e-commerce revenue data was published more than two weeks ago, on Feb. 18. So if investors are furious about it, they’re playing catch-up today. (On the other hand, J.P. Morgan reminding them of their disappointment again may not have helped.)

What now

Here are two big things to keep in mind.

First, growth stock Amazon’s AWS (Amazon Web Services) actually accounts for more of its profit than e-commerce. Indeed, as time goes on, the image of Amazon we all have in our heads as an e-commerce firm is less valid. E-commerce is becoming less significant to Amazon’s income, according to current data from S&P Global Market Intelligence. According to this information, Amazon now receives $18.5 billion of its operating profits from Amazon Web Services cloud computing, or 74% of its overall profits. That’s almost three times as much money as e-commerce generates for Amazon.

Second, J.P. Morgan notes that part of the decline in e-commerce spending was due to a continued resurgence of brick and mortar retail sales. While that might may indicate a shift in consumer spending away from Amazon, the ongoing supply chain headwinds were also a factor, and those will subside in time. So long-term, J.P. Morgan still sees a trend toward increased penetration of e-commerce into overall consumer spending.

In that light, Q4’s national e-commerce revenue “miss” looks less like a deadly hazard to Amazon and more like a rounding error. Nevertheless, that’s why Amazon stock fell yesterday.

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