3 charts that make me believe 2022 will be a record year for Amazon

TThe year 2021 will not be marked as a good year for Amazon (NASDAQ: AMZN) shareholders. The stock is poised to register a gain of around 4% year-over-year, significantly different from Amazon, far behind what will end up being around 27% for the S&P 500 (SNPINDEX: ^ GSPC). Like so many other companies, the e-commerce giant has also fallen victim to the inflation bug, at least in the eyes of investors.

The year ahead, however, will most likely be very different. Three easy-to-understand charts illustrate why Amazon stocks could – and should – reignite their long-standing rally.

1. Amazon Web Services is on fire

You may be familiar with the business as an e-commerce business. The point is, however, Amazon makes a lot more money selling cloud computing services than it does selling merchandise.

The graph below puts it in perspective. In the last four published quarters, Amazon Web Services (AWS) generated operating profits of nearly $ 17 billion, compared to retail sales operating profit of about $ 11.5 billion. Certainly, the increase in fulfillment, shipping and payroll costs had an unusually large impact on the third quarter results. Even eliminating the unexpected impact of these rising costs, AWS has been the biggest money maker since 2019.

Data source: Amazon Inc. Chart by author. All figures are in millions of dollars.

Now extrapolate these growth trends. Assuming that each of these three business units maintains its current global tax directory, AWS is on track to generate approximately $ 21 billion in operating revenue in 2022, compared to e-commerce operating profits of around 14 billion dollars. billions of dollars. The company’s cloud computing arm is poised to drive Amazon not only to record revenues, but also to shattering revenues.

2. Gas prices should drop

Amazon’s e-commerce profit rebound will only take shape if the rise in transportation costs recedes. Gasoline and diesel prices soared early in the year and have continued to climb since then. As a result, Amazon noted increases of 57%, 30%, and 20%, respectively, in worldwide shipping costs for its first, second, and third fiscal quarters of 2021. Fulfillment costs and cost of sales – which also include delivery items – have jumped. in the same way. Given that diesel and motor fuel prices have only retreated slightly since they hit a multi-year high in November, there’s not much reason to think Amazon will feel much relief on this front. over the coming year.

Two people examining a printed chart at a desk.

Image source: Getty Images.

In its latest update on the matter, however, the U.S. Energy Information Administration (EIA) predicts that the price of gasoline will drop to an average of $ 2.88 per gallon in 2022 and end the period. coming year at a price of $ 2.61 per gallon. For the prospect, auto fuel currently sells for $ 3.27 per gallon on average.

Gasoline prices are expected to retreat from multi-year highs of 2021 in 2022.

Data source: US Energy Information Administration. Chart by author.

The outlook may sound more like wishful thinking than a realistic assessment of the situation, but it actually makes sense when you consider how long the oil drilling and exploration industry can take to plan and execute. new projects. As the EIA forecast indicates: “For the whole of 2022, we forecast that production growth for OPEC +, tight reservoir oil from the United States and other non-OPEC countries will exceed slowing growth in global oil consumption, particularly in light of renewed concerns about COVID-19 Variants. “

3. E-commerce remains a minority in distribution

Finally, perhaps the most compelling reason to expect continued growth from Amazon in 2022 is to visualize the volume of the company’s retail activity. is not To do.

Yes, the ecommerce platform is a giant for sure. Market research agency eMarketer estimates that Amazon alone controls 40% of the US online shopping market. That leaves the other 60% up for grabs if Amazon can find a way to earn it. What isn’t always fully appreciated, however, is that Amazon has the opportunity to increase its bottom line, even if that never increases its current market share. For as big as Amazon and its online shopping counterparts collectively, e-commerce still only accounts for around 15% of the country’s total retail spending, a proportion more or less reflected in overseas markets.

The e-commerce threshold is only a small fraction of total U.S. (and world) retail spending.

Data source: US Census Bureau and Federal Reserve. Chart by author. Figures in dollars are in millions.

To be clear, the chart above only considers the retail dollars that Amazon has a legitimate chance of earning. Total retail sales figure excludes sales of cars, auto parts and gasoline.

To put the visualization in a more digital perspective, last quarter’s nationwide e-commerce spending of $ 214 billion is still $ 1.1 trillion less than the total amount Americans spent on goods like clothing, electronics, furniture, equipment, food and cleaning supplies. In other words, there is still plenty of room for growth.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. James Brumley has no position in the stocks mentioned. The Motley Fool owns and recommends Amazon. The Motley Fool recommends the following options: $ 1,920 long calls in January 2022 on Amazon and $ 1,940 short calls in January 2022 on Amazon. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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