Can online retailer Amazon (NASDAQ:AMZN) get its mojo back? After a stellar gain of 74% in 2020 as the world shut down due to the coronavirus pandemic, AMZN stock has woefully underperformed this year.
Despite hitting an all-time high of $3,773.08 in July, shares have gained just 4% year to date, while the S&P 500 is up around 19%. And AMZN stock has declined about 3% since early September.
The lackluster performance is understandably frustrating to shareholders given that the company continues to produce exceptionally strong earnings and retains a market-leading position in much of the world.
Global Issues Hindering Growth
Internally, Amazon continues to fire on all cylinders. However, it is grappling with a number of issues that have weighed on companies of all sizes this year. These include labor shortages, wage inflation, supply chain bottlenecks, shipping delays and a lack of availability of popular consumer products ranging from smartphones to video game consoles.
These ongoing challenges, along with tough year-over-year comparisons from the height of the pandemic, caused Amazon to see a sharp drop in growth. For the second quarter, Amazon saw revenue increase by 27% year over year. A year ago, sales were up 41% in the second quarter. And management has warned growth is likely to slow to 10% to 16% in the third quarter. Noteworthy, but hardly devastating.
Additionally, Amazon is adjusting to its new chief executive officer, Andy Jassy, who took over in July when longtime Amazon leader Jeff Bezos stepped down to focus on his other business ventures. The transition marked the first CEO change in the Seattle-based company’s 27-year history.
So far, Jassy has kept a fairly low profile. His most significant public event was making the rounds to meet lawmakers on Capitol Hill at the end of September as Congress scrutinizes Amazon’s labor practices.
Amazon Continues to Deliver Strong Financial Results
If any of the problems afflicting the global economy are impacting Amazon, you wouldn’t know it by looking at the company’s recent earnings reports.
The e-commerce giant has posted revenue in excess of $100 billion for three consecutive quarters. While revenue for the second quarter fell short of analysts’ estimates, the company still grew sales 27% year over year to $113.08 billion. Net income increased to $7.8 billion in the second quarter, compared with $5.2 billion a year ago. And earnings per share were up 48% from a year earlier.
We’ll get another snapshot of how Amazon is performing soon when the company issues its third-quarter financial results on Oct. 28. While a modest slowdown in growth is expected, it shouldn’t dampen what has been an exceptionally strong run for Amazon this year. Furthermore, the fourth quarter of the year is typically the strongest for Amazon given that it contains the busy holiday shopping season, including Black Friday and Cyber Monday.
New Ventures and Anti-Trust Actions
The company continues to expand globally, recently announcing it is hiring 55,000 staff worldwide to fill corporate jobs and roles in robotics, research and engineering.
In addition to beefing up its core online retail business, Amazon is experimenting with new ventures ranging from grocery delivery to video game development.
Its streaming service continues to add new television and movie content, and the company is in the process of finalizing an $8.5 billion acquisition of MGM Studios that will give it ownership over many popular entertainment franchises such as the “James Bond” films and the “Stargate” series.
Plus, Amazon recently acquired from the National Football League (NFL) the exclusive rights to broadcast Thursday Night Football games on its Prime Video service beginning in the 2022 season.
While these moves strengthen the company, Amazon’s e-commerce dominance and expansion into new businesses have drawn the attention of lawmakers and regulators in Washington, D.C., who are growing increasingly fixated on large technology companies and their outsized influence on markets and consumers.
In an action similar to those filed against Facebook (NASDAQ:FB) and Google (NASDAQ:GOOGL), the attorney general for the District of Columbia filed a lawsuit against Amazon in May, alleging the company unfairly squashes competition in aggressive, unfair ways. The lawsuit will likely take years to resolve, and, so far, big technology companies have been winning against the government in court. While the antitrust actions cast a cloud over Amazon, it is a small one on an otherwise sunny sky.
The Bottom Line on AMZN Stock
AMZN stock has been a laggard this year. But while it may be down, it’s far from out.
The consensus on Wall Street is that it is only a matter of time before Amazon’s share price vaults higher. The median price target on the stock is $4,105, implying 20%-plus upside from its current level. The low target on the stock of $3,775 is 11% higher than the current share price.
Given all that Amazon has going for it and that it remains a profit-generating machine, investors would be smart to buy the dip in AMZN stock and ride the share price higher in the coming months.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
