Amazon (AMZN) bulls may finally have a reason to smile — just like the company’s logo suggests — after a relatively ugly winter, according to a recent Bank of America (BAC) Global Research report.
“We continue to rate Amazon as our top FANG and large-cap Internet stock for 2022,” Bank of America analyst Justin Post wrote in his report. “Amazon's profit outlook is improving as the COVID impact on labor and supply chain subsides.”
Amazon pushed markets up on Friday, and was the best performing FANG (an acronym of four of the biggest tech stocks, Meta (FB) (formerly Facebook), Amazon (AMZN), Netflix (NFLX), and Alphabet (GOOG)) stock of the week.
The e-commerce giant closed more than 13% higher on Friday after a 2021 fourth quarter earnings report showing revenue gains and an $11.8 billion profit from investment in Rivian (RIVN), an electric vehicle company which recently went public.
Net sales increased a reported 9% in Q4 2021. The company ended the year with net sales of $469.8 billion, a 22% increase from 2020.
After trading hours Thursday, AMZN underwent a rally, accelerating past 14% and extending those gains into Friday. The rally marked the company’s biggest one-day gain since 2012.
Prior to this most recent rally, the stock had fallen double digits since approaching record highs back in November. A strong performance from Amazon Web Services (AWS) in Q4 2021 was a crucial aspect of the bounce-back, the BofA report found.
“AWS growth accelerated 1pt [quarter-over-quarter] to 40%, closing [the] gap to much smaller peers,” the report noted. In this respect, AWS beat competitors like Microsoft’s Allure and Google’s GCP, neither of which experienced positive growth. Growth margins of 29.8% also beat Bank of America’s expectations of 29.5%.
“Strong performance was attributed to salesforce investments as Amazon goes after large and small enterprises,” the report explained. “We estimate AWS now at 50%+ of total company value in our SOTP [sum-of-the-parts valuation], with rev. growth adding $200 billion of market cap in 2022.”
Subscription cost
Notably, Amazon announced that they would be raising the subscription cost for Amazon Prime membership from $12.99 to $14.99 for monthly subscribers, and $119 to $139 on an annual basis. The report acknowledged higher costs associated with labor shortages and inflationary pressures as problematic, though Amazon remains confident that they are up to the challenge.
“As expected over the holidays, we saw higher costs driven by labor supply shortages and inflationary pressures, and these issues persisted into the first quarter due to Omicron,” said Andy Jassy, Amazon CEO. “Despite these short-term challenges, we continue to feel optimistic and excited about the business as we emerge from the pandemic.”
Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.
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