Amazon, the global e-commerce leader, turned in poor earnings on Thursday, causing the company’s stock to plummet 15% to under $2,500 per share this week in its worst sell-off since 2006. 

The e-commerce giant posted a net first-quarter loss of $3.8 billion as revenue growth slowed to a pace unseen since the dot-com bubble burst in 2001. 

On top of that, management guided for second-quarter net sales of between $116 billion and $121 billion, representing a roughly 5% cut to Wall Street’s consensus estimates. Amazon’s e-commerce business was a particular sore point, with online retail sales dropping 3% year-over-year to $51.1 billion through the first three months of 2022.

The less-than-stellar earnings have market pundits questioning whether the recent price drop in Amazon’s stock represents a buying opportunity, or if it’s just another sign of an increasingly bearish market.

A canary in the coal mine?

Morgan Stanley analysts, led by Michael J. Wilson, argue that Amazon’s results are indicative of an ongoing, and bearish, trend by U.S. companies—falling earnings growth and weak guidance.

The investment bank’s analysts wrote in a Monday note that there’s “growing evidence that growth is slowing faster than most investors believe,” and argued Wall Street’s earnings estimates for the next year remain too high. 

The Morgan Stanley team pointed to comments from Amazon’s CEO Andy Jassy as evidence that companies formerly known for their rapid growth are turning their focus to business efficiency in an environment that lacks opportunities to increase revenues.

“The issue is that the quality of earnings is deteriorating, and the commentary from management teams is getting incrementally cautious about the future path of growth,” Morgan Stanley analysts wrote on Monday. “We think Amazon’s earnings and commentary from CEO Andy Jassy may encapsulate this view better than anything else.”

In Amazon’s first-quarter earnings report, Jassy said he was focused on “improving productivity and cost efficiencies” as Amazon works through “ongoing inflationary and supply chain pressures.” Management also noted it is monitoring customer purchases for a decline as rising food and fuel prices begin to affect consumer spending. 

Some 84% of Americans plan to cut their spending as a result of rising inflation, according to a Harris Poll survey conducted for Bloomberg, and that could have devastating effects on e-commerce businesses.

A number of top analysts argued that Amazon’s poor first-quarter is a sign of things to come for the slate of e-commerce firms—including Etsy, Wayfair, and Shopify—that are set to report earnings this week. 

“It’s a canary in the coal mine,” Oktay Kavrak, a director and product strategist at Leverage Shares, told Bloomberg on Monday. “If Amazon is hitting a speed bump, other names could crash. People were expecting a slowdown in growth following the pandemic, but I don’t think they expected as drastic a drop as we saw.”

Wall Street is still behind the e-commerce leader

Still, not every Wall Street expert is calling for investors to avoid Amazon and the e-commerce space. In fact, the vast majority of banks still have a “buy” rating on Amazon’s shares, with only 3 out of 52 Wall Street analysts holding a neutral or negative rating, Wall Street Journal data shows.

Bank of America analysts, led by Justin Post, reiterated their “buy” rating on Amazon’s shares on Friday after earnings and argued the company’s earnings miss is a “buying opportunity.” The analysts did lower their price target for the company’s stock from $4,225 to $3,770, but noted that roughly half of Amazon’s market value comes from its cloud business, which grew at a 37% clip in the quarter.

While Amazon’s mean target price has dropped from $4,110 on March 31 to $3,704 as of Monday, according to FactSet data, per Barron’s, the current price target from Wall Street still represents a potential 49% jump from Friday’s close of $2,485.