Amazon | Fundamental Analysis

In 2020, online commerce businesses thrived due to the pandemic and corresponding government lockdown orders. That was the momentum with which Amazon, one of the biggest players in the industry, began 2021. Nevertheless, the tech giant lagged the market last year, and some aspects probably contributed to Amazon's poor performance in 2021.

Foremost, investors largely abandoned so-called "pandemic companies," and as a result, many of these companies had a terrible year. Second, Amazon's legendary founder Jeff Bezos stepped down as CEO in Q3, leaving his deputy Andy Jassy at the helm. Will these factors continue to affect Amazon's stock performance, or will the company be able to return to its market gains?

Amazon stock is currently trading at $3222. Let's see if the stock can rise about 23% this year and reach the $4,000 mark.

While the pandemic has led to increased adoption of e-commerce, from which Amazon has only profited, the outbreak has also brought some problems for the company's consumer business. According to the company's latest quarterly report, the tech giant now faces "labor shortages, increased payroll costs, global supply chain challenges, and increased freight and shipping costs."

The company has also doubled the size of its fulfillment network since the pandemic began to cope with capacity issues. Amazon has largely insulated its customers from these higher costs, which indicates it is taking them on. The company said it would incur "several billion additional costs" because of the problems it faces, which could hurt the bottom line, at least in the short term.

Amazon has always been focused on meeting the needs of its customers, and it is now demonstrating that commitment again. The money Amazon spends on existing problems will help keep the retail business efficient. Prompt delivery to customers is what's important in the long run. But don't forget the company's cloud computing division, Amazon Web Services (AWS).

AWS continues to contribute significantly to Amazon's overall business performance. In the third quarter, the company posted net sales of $110.8 billion, up 15 percent from a year ago. However, the company's operating income and net income declined. Amazon's operating profit fell 21.7% to $4.9 billion, and net income fell to $3.2 billion, down 50.2% from a year ago.

How did AWS perform? Net sales in this segment grew 38.9% to $16.1 billion, well above the growth rate of Amazon's entire business. In addition, AWS's operating profit rose 38.1% to $4.9 billion, while Amazon's international segment posted an operating loss. The North American division's operating profit was only $880 million.

According to Statista, Amazon had 32% of the cloud computing market in Q3; its closest peer was 21%. And while increased competition in this area is a potential hurdle to keep in mind, Amazon generates a lot of cash, and we can anticipate the business to continue to invest heavily in this business. Amazon ended the third quarter with $30.2 billion in cash and cash equivalents, which remained more or less unchanged from a year ago.

By some estimates, the cloud computing market will grow at a compound annual growth rate of 17.9 percent through 2028. That's good news for Amazon - and its shareholders. The tech giant is expected to continue to benefit from this favorable factor.

Despite near-term challenges, Amazon is still perfectly set for long-term growth. This is what matters most: After all, the market must be forward-looking. That is why, after being a laggard last year, the company should be expected to outperform the broader market in 2022. Analysts believe that Amazon will increase its revenue by 17.7% this year.

In addition, the consensus price forecast for the company is $4104.88, which is 26% higher than the current price. Amazon is likely to exceed that price target over the next 12 months. But even if it doesn't, investors should remain focused on the company's excellent long-term prospects.