If there’s any big-name stock that disappointed investors in 2021, it’s Amazon (NASDAQ:AMZN) stock.
But should you really be surprised by that? Probably not.
Amazon had a ridiculously profitable 2020 for a tragic reason. The Covid-19 pandemic shut down brick-and-mortar stores across the country. Suddenly stuck at home and armed with government stimulus payments, shoppers turned to e-commerce in record numbers.
But the world was a different – and better – place in 2021. Stores reopened. Kids went back to school. Workers started returning to their offices.
And even as the omicron variant ravages the U.S. right now, there seems to be little interest in shutting down the country again. Most schools are still offering in-person learning. Jets are still zipping across the sky.
That’s great for you and me. But that’s not so great, as it turns out, for AMZN stock.
AMZN Stock by the Numbers
When you look at Amazon’s numbers in 2021, its important to keep its ridiculously successful 2020 in perspective. Amazon stock jumped 73% in 2020, versus a gain of 15.3% for the S&P 500.
So, the year-over-year comparisons for AMZN stock are really out of whack in 2021. Operating income in the third quarter was $4.9 billion, which was a drop from $6.2 billion in the third quarter of 2020.
Net income also fell on a year-over-year basis, going from $6.3 billion and $12.37 per diluted share in Q3 2020 to $3.2 billion and $6.12 per share in the third quarter of 2021. Analysts had expected $8.92 per share in the quarter.
Overall, the company’s revenue of $110.81 billion missed analysts’ expectations of $111.6 billion.
As I’ve written previously, I’m not expecting Amazon to have a great fourth quarter, either. Q4 and full-year 2021 results will likely come out early next month.
For the year, Amazon gained only 2.3% in 2021, while the S&P 500 rose more than 22%.
Does all this mean Amazon is a bad stock? Are the days of huge growth in the rearview mirror?
I don’t think so.
It’s important for investors not to overreact to the day-to-day news. We all eagerly look forward to those quarterly earnings reports so we can see if a company met expectations, blew them out of the water or fell short. But when we do that, we should also look at the big picture.
Why are the numbers high or low? What’s going on in the world? And in Amazon’s case for the sake of this article, what kind of numbers are we comparing year-over-year performance?
In 2020, Amazon consistently overperformed expectations because the pandemic created a unique situation. Then in 2021, it underperformed because experts consistently compared it to its 2020 performance and marveled that the company was purportedly losing ground.
Now we’re in 2022. And later this spring, we’ll see Amazon’s Q1 earnings report that will be measured against how the company performed in the first quarter of 2021. And in that comparison, Amazon’s 2022 numbers are going to look pretty solid.
Goldman Sachs is already on board the AMZN stock bandwagon. The investment bank says Amazon is its top internet stock for 2022. It says Amazon is “exposed to a multitude of broader secular growth themes, including e-commerce, advertising, cloud computing, media consumption and consumer subscription adoption” that should drive the share price higher in the next 12 months.
And its not alone. Of the 47 analysts who cover AMZN stock, 43 currently list it as a “buy” or “strong buy.” The consensus price target is $4,104, which represents 24% upside from today’s prices.
The Bottom Line on AMZN Stock
Amazon has already announced the company will take a $4 billion charge in the fourth quarter from increased labor costs, productivity losses and inflation. Operating profit for Q4 will also likely suffer.
But Amazon is more than just an e-commerce company. Its Amazon Web Services made $55.9 billion in the third quarter, which was more than AMZN made from its retail division. And that number will continue to grow, even if ecommerce continues to be challenged.
Looking ahead to 2022 numbers, I’m expecting much better performance from Amazon this year. You won’t see 70%+ stock growth in 2022, but gains in the 25% to 30% range are surely reasonable.
On the date of publication, Patrick Sanders 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.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders.