Amazon’s Q3 earnings has caused mixed feelings. Despite long-term optimism displayed by all 29 top analysts that cover Amazon stock (AMZN) - Get Amazon.com, Inc. Report, many dropped their price targets to reflect the short-term worries. One of them was Goldman Sachs.
Goldman’s Eric Sheridan lowered his AMZN share price projection from $4,250 to $4,100 right after the Q3 earnings season. Now, the investment bank has named Amazon its top pick stock for 2022 in the Internet space. The target remains $4,100 for 15% upside potential, not far from Wall Street’s consensus average. Today, we look at what is behind Goldman’s thesis.
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Diversification is key
The main argument sustaining Goldman’s bullishness is Amazon’s extensive product and service portfolio. Mr. Sheridan believes that diversification is crucial in overcoming the current supply chain disruptions and labor constraints. According to the analyst:
“AMZN is our top pick for 2022, as we view this recent earnings report as fully reflective of investor concerns on both revenue and profitability into 2022. [But] AMZN is exposed to a multitude of broader secular growth themes, including e-commerce, advertising, cloud computing, media consumption and consumer subscription adoption”.
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Better comps, investments pay off
Amazon has been the worst performing FAANG stock so far this year, in part due to the company’s tough P&L comps. Amazon’s 2020 performance was so strong that the company had a hard time keeping up in 2021. As Amazon moves away from pandemic-distorted results, 2022 sales should start to look robust on a yearly basis once again.
The retail and cloud giant should also begin to reap what it has sown lately. Amazon has been heavily investing in operations to keep up with demand. CFO Brian Olsavsky said that the company has been directing cash to new storage facilities and hiring extra workers for the holiday season.
There are other potential tailwinds for Amazon’s e-commerce segment in 2022. Some of Rivian’s (RIVN) - Get RIVIAN AUTOMOTIVE, INC. Report trucks are set to be delivered next year, and Amazon could benefit twice: (1) the electric-powered vans could lower last-mile delivery costs, and (2) Rivian’s on-schedule delivery, if it happens, could boost the value of Amazon’s 20% stake in the automaker.
Starbucks has recently announced that it is opening a new Starbucks Pickup Store in which Amazon Go technology will be used. The system substitutes the need for a cashier, thus eliminating lines and expediting the point-of-sale process.
As reported by Nasdaq’s author Danny Vena, the technology could present an opportunity of $50 billion for Amazon’s financial statements.
Goldman Sachs seems to nod in approval of our thesis that Amazon’s fundamentals remain intact. The company has a diversified stream of revenue and is a powerful player in most markets in which it operates. Maybe some analysts are right, including Eric Sheridan, in their conviction that 2022 will be the year for Amazon stock to rebuild momentum.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)