Why Amazon Stock Sorely Lagged the Broader Market in 2021

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What happened

For investors in many of the companies that posted outsized growth during the pandemic’s first year, 2021 was somewhat of a letdown. For example, e-commerce giant Amazon (NASDAQ:AMZN) delivered a mere 2% gain in 2021, according to data provided by S&P Global Market Intelligence. That was way below the S&P 500‘s 27% gain, itself a much better than average result for the index. The tepidness of Amazon’s share price performance was due to the company’s sagging growth and lukewarm guidance.

AMZN data by YCharts

So what

Amazon’s revenues positively exploded during the pandemic’s first year as Americans dramatically shifted their shopping online. The e-commerce leader was destined to lose some of its tailwind once more physical stores reopened and shoppers felt more comfortable about returning to them — and that’s what happened. And, of course, after its banner 2020, Amazon faced tough year-over-year comps in 2021.

Image source: Getty Images.

2021 started out with a bang, with first-quarter comps soaring 44% year over year, since the most of previous year’s Q1 was in the books prior to the first pandemic-related shutdowns in the U.S. That slowed to 27% in the second quarter, which was still quite impressive considering the 40% increase in the prior-year period. However, comps growth decelerated to 15% in the third quarter, with management guiding for 8% at the midpoint for the fourth quarter. Amazon Web Services was the company’s rock in the third quarter, accounting for 14% of income but practically all of net income.

Amazon has been dealing with a host of issues beyond tough comps, including the ubiquitous supply chain issues, wage increases, and labor shortages. CEO Andy Jassy, who took over last July, said: “We’ve always said that when confronted with the choice between optimizing for short-term profits versus what’s best for customers over the long term, we will choose the latter.” To that end, he said to expect continued pressure in the fourth quarter as the company shells out money to quickly get customers their purchases.

In the meantime, Amazon is doing what it does best: disrupting new areas and growing its dominance. It opened tens of new physical locations last year and forged several deals for its cashier-less technology. It introduced Amazon One, which allows customers to identify themselves and pay with a palm-print. It also entered new markets, acquired MGM Studios for Amazon Prime Video, and expanded its lucrative Amazon Web Services client list, in addition to many other ventures.

Now what

A 2% share price gain is still a gain, and that’s far better than many other great companies did in 2021. Short term, the market can be fickle, with stocks rising or falling based on news that’s largely irrelevant in the long term. Amazon is a great company with a solid lead in several industries, and it should enjoy many years of continued growth.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.