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Is the Amazon share price a top pick for 2022?

Amazon’s [AMZN] share price lagged behind other FAANG stocks this year. Over the course of the year so far, it has gained a humble 4.08% (through 3 December), well behind both Alphabet’s 62.7% gain and even Netflix’s [NFLX] 11.4%. Friday saw the stock close at $3,389.79, having slipped 4.5% since 18 November.

Comparing Amazon to other FAANGs is tricky considering that each company in that acronym sits in a very different sector. Yet benchmarked against the Nasdaq’s 17% gain for the year, Amazon has been off the pace. In truth, Amazon’s share price has more in common with the other large US retailers that performed well during the pandemic. For example Walmart [WMT] is down 4.6% and Best Buy [BBY] 6.69%.

However, a combination of the omicron variant and shoppers turning their attention towards the festive season could see Amazon finish the year with strong sales figures and a boosted share price.

 

 

What's happening with Amazon's share price?

Amazon’s share price’s pedestrian growth in 2021 can be partly put down to the monster growth seen in 2020 when the online retailer was considered by many to be a utility during the pandemic. During 2020 Amazon’s share price surged over 73% making it one of the stand out performers of the pandemic era.

This year, however, Amazon has faced increased competition with bricks and mortar stores back open and welcoming customers. Compounding things have been missed quarterly earnings, supply chain issues and slashed fourth quarter guidance.

$0-3billion

Operating profit expectations for Q4 - down from $6.9bn last year

 

For Q4 Amazon now expects sales of between $130 billion and $140 billion in the fourth quarter - a sluggish growth rate of between 4% and 12%. Operating profits in the fourth quarter are expected to be between $0 and $3bn - a steep drop from the $6.9bn seen in the same period last year for what is traditionally Amazon’s most lucrative period.

However, that was before the Omicron variant surfaced. At the time of writing the effects of the variant and protections that current vaccines offer were still unknown. This could mean more people eschewing physical stores and choosing to shop online. Even among the analysts there’s a sense that the negativity seen around Amazon’s share price over the autumn has been overdone.

 

Analysts see upside for Amazon in 2022

UBS analyst Kunal Madhukar thinks Wall Street estimates for Amazon are too conservative and that there could be a number of re-ratings on revenue estimates for its retail and Web Services. Recently the analyst started coverage on the stock with a Buy rating and a $4,700 rating, noting ‘multiple levers’ to drive margins.

Over at JP Morgan, Doug Anmuth reckons that Amazon could surpass Walmart as the biggest US retailer in 2022. The analyst suggests that the online retailer is no longer as constrained as it was at the start of the pandemic having doubled its fulfilment network. Anmuth has a $4,350 price target on the stock.

Goldman Sachs’ Eric Sheridan is similarly positive. Despite Goldman lowering its price target to $4,100 after Amazon’s underwhelming Q3 results, Sheridan has named the stock its top pick in 2022 in the internet space. Goldman’s target is based on Amazon’s diverse business model. Like Anmuth, Sheridan believes Amazon will benefit from investment in its fulfilment network, storage and staff over the holiday season.

$50billion

Total Amazon could add through use and licensing of AI tech, per Loop Capital

 

The analyst also sees Amazon’s investment in electric delivery vehicle maker Rivian paying off. For one, it could help reduce Amazon's delivery costs. Secondly, Amazon has a 20% stake in Rivian. So if the automobile manufacturer meets delivery targets Amazon could benefit from a surge in Rivian’s stock.

Another tailwind is Amazon partnering with Starbucks on a store using Amazon Go technology. The concept is that customers with the Amazon app can grab a coffee from the store without having to wait in line. Instead through a combination of AI and sensors, customers will be charged when they leave the store.

Danny Vena writing on The Motley Fool suggests that the use and licensing of this technology could be a huge breadwinner for Amazon, citing figures from Loop Capital suggesting it could add $50bn.

Among the analysts tracking Amazon’s share price, the stock has an average price target of $4,107.20, suggesting a 21.1% upside on Friday’s close.

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