Amazon was the worst performing FAANG stock of 2021 – here’s why


Photographer: Thorsten Wagner / Bloomberg via Getty Images

Bloomberg | Bloomberg | Getty Images

Amazon stocks ended 2021 as the biggest laggard among mega-cap tech names, but there’s reason to believe 2022 could be a brighter year for stock.

Amazon stocks rose a meager 2.4% in 2021, significantly underperforming the other four so-called FAANG stocks. Apple gained 34%, Meta Platforms (formerly Facebook) saw its shares rise 23%, Netflix rose 11% and Alphabet, the top tech stock of the year, climbed 65%. At the same time, tech giant Microsoft grew 51% for the year, and the high-tech Nasdaq Composite gained 21%.

The last time Amazon delivered such poor returns for investors was in 2014, when the stock fell 22%.

Several factors were responsible for Amazon’s poor stock market performance last year, analysts said.

Amazon, like other e-commerce companies, faced difficult year-over-year comparisons to 2020, when the coronavirus pandemic led to an increase in online orders.

Consumers have cut back on trips to physical stores to avoid exposure to the virus and have flocked to online retailers for everything from toilet paper and face masks to office furniture and dumbbells. The shift to online shopping has boosted sales from Amazon, eBay, Etsy, Wayfair and others, benefiting their growth rates and increasing their stock prices.

Amazon’s profits tripled year-over-year from the second quarter of 2020, the first period to reflect the business surge fueled by the pandemic, and for three consecutive quarters.

In the spring of 2021, as a growing number of Americans were getting vaccinated against Covid-19, consumers began to return to stores and shifted some of their spending toward pre-pandemic habits like travel and dining.

Even though online shopping has remained strong, Amazon has seen its impressive year-over-year growth rates start to fade. In the second quarter of 2021, Amazon’s revenue grew 27%, which was a significant slowdown from the period a year earlier, when sales climbed 41%.

Amazon has underperformed expectations in its last two earnings reports, which also weighed on the stock, said Tom Forte, senior research analyst at DA Davidson, in an interview.

Amazon’s other key businesses, cloud computing and advertising, had a “very good year” in 2021, but that did not eclipse the poor performance of Amazon’s retail division, Forte said. , which has a buy rating on Amazon stocks and a price target. of $ 3,900 per share.

“If you look at 2021 on your own, that shows that doing well in the cloud and advertising is not enough on its own,” he added.

Investor concerns about rising costs in Amazon’s core retail business may also have contributed to the stock’s underperformance, Forte said.

Amazon had warned Wall Street for much of 2020 and 2021 that it would spend billions of dollars on coronavirus-related costs, such as safety measures for frontline workers and growing its physical network to meet demand. .

Then, just as Covid-related costs started to moderate last year, Amazon and other large corporations faced global supply chain constraints and workforce issues. . CEO Andy Jassy said Amazon would assume “billions of dollars” in additional costs in Q4 2021 to fix these issues.

Amazon raised wages and offered bonuses to lure workers into a tight labor market. Faced with inconsistent staffing levels at some warehouses, Amazon had to re-route packages over longer and sometimes more expensive distances to facilities with enough staff to process orders.

“We all knew there were expenses associated with Covid-19, but it was a surprise to me when I realized they had a workforce issue,” Forte said. “It was a negative surprise and I think it affected the performance of the action.”

Look ahead

After a lackluster 2021, Amazon stock may have an easier time this year.

The company will face easier year-over-year comparisons after moderate growth in 2021, Guggenheim analyst Seth Sigman said. Amazon may also begin to reap the rewards of some of its pandemic-related investments in supply chain and logistics over the past two years, Sigman said.

“We expect growth to accelerate again in 2022 after the moderation we’ve seen over the past few quarters,” said Sigman, who has a buy rating and price target of $ 4,300 on Amazon stocks. .

There are several hangovers from last year that could still weigh on Amazon stocks in 2021, such as inflationary pressures, supply chain constraints and labor issues, said Strong.

Still, several analysts named Amazon as the top pick for the year, including Jefferies, Bank of America Global Research, RBC Capital Markets and Goldman Sachs, citing expectations of a rebound in its e-commerce activity.

LOOK: Amazon is our top tech pick for 2022, says Jefferies’ Brent Thill


Comments are closed.