Amazon was the worst-performing FAANG stock of 2021 — here’s why
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AmazonThe shares were the largest laggard of the mega-cap technology companies in 2021, however there is reason to believe that 2022 might be a more positive year.
Amazon’s shares rose just 2.4% in 2021. This is a significant underperformance of the four other FAANG stocks. Apple34% increase Meta PlatformsFacebook shares rose by 23% in the past. NetflixIncreased 11% Alphabet, the year’s top tech stockIt climbed by 65%. Microsoft, a tech giant that was also up 51% over the previous year, and tech-heavy Nasdaq Composite21% gain
Amazon’s stock plunged 22% in 2014 when it delivered poor returns.
According to analysts, there are many factors that contributed to Amazon’s low stock performance over the past year.
Amazon was not unlike other e-commerce firms. It faced hard year-over-2018 comparisons until 2020, when the coronavirus outbreak led to an increase in online sales.
In order to prevent the virus from spreading, people stopped shopping at physical stores. Instead they turned to online shops for toilet paper, face masks, office furniture, and dumbbells. Amazon saw an increase in sales due to its shift towards online purchasing. eBay, Etsy, WayfairOthers, and benefitting from their growth rates as well as a rise in stock prices.
Amazon saw its profits increase by three times year-over-year beginning with the second quarter 2020. This was the first quarter to show the impact of the pandemic and the subsequent quarters.
As more Americans received Covid-19 vaccines in spring 2021, shoppers began to return to the stores. They also started shifting some of their spending towards pre-pandemic activities like dining out and travel.
Amazon’s impressive year-over-2018 growth rate of Amazon online shopping began to slow down, even though it was still a strong market. The second quarter of 2021Amazon’s revenues grew by 27% in the past year, which is a marked slowdown compared to sales that soared 41% over the same period.
Amazon delivered on its promises in spite of expectations its last two earnings reportsTom Forte (senior research analyst, D.A.) said that the stock also suffered from the effects of the stock. Interview with Davidson
Amazon’s other core businesses of cloud computing and advertisement had a “very strong year” in 2021. But that doesn’t outweigh the disappointing performance of Amazon’s core retail division. Forte holds a buy rating for Amazon stock with a $3,900 price target.
He said, “If we look at 2021 in isolation, it shows us that being successful in advertising and cloud is not enough.”
Forte stated that investors’ concerns about rising prices in Amazon’s core retail division may also have contributed to the stock’s poor performance.
Amazon had warnedWall Street will continue to spend billions of money on coronavirus related costs for 2020 and 2021. This includes safety measures for frontline workers as well as expanding its physical network to match demand.
Amazon and major corporations faced global supply chain challenges and labor difficulties, right as Covid costs started to ease last year. Chief Executive Officer Andy Jassy indicated that Amazon would incur additional costs of “several million dollars” for these problems in the fourth-quarter of 2021.
Amazon raised wages and offered bonusesTo attract employees in a tight labor market. Amazon was faced with inconsistent workforce levels at warehouses and had to redirect packages to locations that have enough personnel to process the orders.
Forte explained that while we all knew about the expenses of Covid-19, it was something that surprised me to discover that they were experiencing a labor shortage. Forte said, “It was an unexpected negative and it certainly affected the stock performance.”
Looking forward
Amazon may be able to rebound after an unfavorable 2021.
After growth slows in 2021, comparisons between year to year will be easier for the company, according to Seth Sigman from Guggenheim. Sigman suggested that Amazon could also reap the rewards of certain pandemic-related investments made in logistics and supply chain over the past two years.
Sigman said that he expects growth to pick up in 2022, after the moderated performance in the previous quarters.”
Forte stated that Amazon could have multiple hangovers in the past year, including inflationary pressures and supply chain constraints, as well as labor problems.
However, many analysts still consider Amazon to be a top choice for the year. These include Jefferies Bank of America Global Research and RBC Capital Markets. They also cite expectations of a recovery in Amazon’s ecommerce business.
WATCH: Amazon is our top tech pick for 2022, says Jefferies’ Brent Thill
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