Amazon Stock Price Up 11% Today – Time to Buy AMZN Stock?

Amazon (AMZN) stock was trading 11% higher in US premarket price action today after markets gave a thumbs up to its fourth-quarter earnings. What’s the forecast for AMZN stock and is it a good buy in February 2022?

Amazon is the last FAANG name to release its quarterly earnings. Its been a mixed earnings season for FAANG companies, while Netflix and Meta Platforms plunged after the earnings release, Alphabet and Apple surged.

FAANG earnings

Netflix provided a dismal outlook for the first quarter and its stock price tumbled to multi-month lows after the earnings release. It also warned that its margins would not increase in 2022 as it spends more on new content.

Apple’s earnings brought cheers to FAANG investors and the company posted better than expected earnings. It tackled the chip shortage situation quite well and posted record sales in all the geographies.

Alphabet also posted strong results in the December quarter and its earnings surpassed estimates by a wide margin. Unlike FAANG peers which saw decelerating growth in 2021, Alphabet’s sales grew at a faster pace in 2021 as compared to 2020. It also announced a 20-for-one stock split which would be completed in July.

Many were expecting Amazon to also announce a stock split. However, the company is not splitting its stock. The last time Amazon split its stock was way back in 1999 during the dot com boom. The stock is now the highest in terms of absolute value among all FAANG names.

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Meta Platforms

However, the real shocker came from Meta Platform’s quarterly earnings. Meta Platforms said that it expects to post revenues between $27-$29 billion in the first quarter which would mean a YoY growth between 3-11%. The company’s guidance fell short of the $30.1 billion that analysts were expecting. It said that its revenues in the quarter would be negatively impacted by both impressions and price growth.

Amazon posted mixed earnings

Amazon reported revenues of $137.4 billion in the fourth quarter of 2021, which were 9% higher than the corresponding period last year. The company’s sales fell slightly short of estimates. This is the third consecutive quarter where Amazon has missed sales estimates. Prior to that, the company posted better than expected revenues for three straight years.

However, Amazon’s AWS revenues came in at $17.8 billion in the quarter, which was higher than the $17.37 billion that analysts were expecting.

Amazon’s earnings were better than expected

Amazon posted an adjusted EPS of $5.80 in the quarter which was way above the $3.57 that analysts were expecting. Notably, in its third-quarter earnings call, Amazon had warned that its operating profit in the fourth quarter might fall to as low as zero amid cost pressures. However, its actual performance was much better than what it had envisioned three months back.

Amazon posted an operating income of $3.5 billion in the quarter which was almost half of what it did in the corresponding period last year. The company also recorded a pre-tax valuation gain of $11.8 billion in the quarter related to its investment in Rivian. Rivian had a strong listing and its market cap swelled as high as $150 billion. However, the stock has since plunged and trades below the IPO price. Nonetheless, Amazon has still made a massive gain on its original investment in the company.

Guidance was below par

Amazon expects its sales to be between $112-$117 billion in the first quarter, which is lower than the $120 billion that analysts were expecting. The company’s revenue guidance had disappointed in the third quarter as well. It expects its operating profits to be between $3-$6 billion in the first quarter.

Commenting on the earnings, Amazon CEO Andy Jassy said, “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. Despite these short-term challenges, we continue to feel optimistic and excited about the business as we emerge from the pandemic.”

Amazon advertising revenues

So far, Amazon wasn’t providing the advertising revenues separately even though many analysts see it as a growth driver for the company. In the fourth quarter, it reported ad revenues of $9.7 billion which were 32% higher YoY. Commenting on the business, AMZN CFO Brian Olsavsky said, “We’re very happy with ad growth. It continues to drive value.”

As many were expecting, Amazon said that it would increase the price of its Prime subscription by $20 to $139. The cost for the monthly subscription would rise by $2 to $14.99. It is the first price hike for Prime service in four years.

AMZN stock forecast

Many brokerages including Cowen, Bank of America, and Goldman Sachs have listed Amazon as a top pick for 2022.

Of the 52 analysts covering AMZN stock, 50 rate the stock as a buy while two rate it as a hold. None of the analysts have a sell or equivalent rating on the stock. Its median target price of $4,055 implies an upside of 45% over yesterday’s closing prices.

UBS, which is bullish on Amazon stock, said earlier this week that it was cautious on the stock heading into earnings. It said, “We remain constructive on AMZN shares, particularly for 2H21, though we take a more conservative stance on near-term EBIT reflecting risk that some cost pressures in 4Q remain sticky in 1H.”

Over the next couple of days, more analysts are expected to revise their ratings on AMZN stock.

Should you buy Amazon stock?

Amazon is not only an e-commerce platform but a complete ecosystem. The company has services like Prime which add to customer stickiness on the platform. Also, it is a play on the massive amount of user data that it has which it can use to show relevant products. There is also the network effect as the availability of wider choices on the platform acts as a competitive advantage and builds high barriers of entry. The company has built a strong moat with its ecosystem which is impeccable.

The company is facing short-term growth issues as well as cost pressures. Also, markets have been apprehensive of tech stocks amid the rise in bond yields. That said, Amazon can be a long-term winner in your portfolio, especially at the current valuations.

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