Stock Analysis & Ideas

Could Amazon Outperform its FAANG Peers in 2022?

Amazon (NASDAQ:AMZN) underperformed its FAANG peers in 2021. Moderation in growth, cost inflation, supply-chain issues, and labor capacity constraints limited the upside in Amazon stock

For context, Amazon’s net sales growth rate slowed to 9% in Q4 2021 from 44% in Q1. Furthermore, inflation, higher wages, and supply-chain headwinds negatively impacted its financials. 

During the Q4 conference call, Amazon’s CFO Brian Olsavsky stated the company witnessed $4+ billion in costs due to “inflationary pressures and loss productivity and disruption in our operation.”

However, could all these change in 2022? 

The Road Ahead

During the Q4 conference call, Olsavsky stated cost headwinds would persist in Q1 2022. However, he expects the situation to improve as the year progresses. Further, Amazon announced an increase in its Prime membership to mitigate higher costs. 

Echoing similar sentiments, Guggenheim analyst Seth Sigman stated that tough year-over-year comparisons and labor constraints are the “main factors still constraining growth.” 

However, he added, “Trends are stronger in markets where labor has been less disrupted, and there were some positive signals that the pressure could ease. That should allow a return to faster shipping and reverse some of the cost pressures and inefficiencies that have weighed on profitability.”

Further, Sigman added that the Prime membership fee hike “could help provide more cover.”

While cost pressure is expected to ease, momentum in its high margin AWS business continues, which is positive. 

Taking a note of the ongoing strength in Amazon’s AWS business, Sigman stated that Q4 marked the 4th consecutive quarter where revenue growth accelerated compared to a “deceleration at other cloud competitors, which suggests that AMZN is taking share here.”

Sigman is bullish on Amazon stock and has a price target of $4,300, implying 39.8% upside potential. 

Wall Street’s Take

Amazon stock has received 33 Buy recommendations for a Strong Buy consensus rating. Further, AMZN stock scores a “Perfect 10” on TipRanks’ Smart Score system, implying that it could outperform the market averages. 

Further, AMZN’s stock price forecast on TipRanks indicates solid upside potential. The average Amazon price target of $4,207.87 implies 36.8% upside potential to current levels.

Also, investors and hedge funds are accumulating AMZN stock. TipRanks’ Stock Investors tool shows that 6.5% of the investors holding portfolios on TipRanks have raised their exposure in the last 30 days. Meanwhile, the Hedge Fund Trading Activity tool shows that hedge funds added 448.2K AMZN shares in the last quarter. 

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