Is Amazon (NASDAQ: AMZN) Ready For All Time Highs?

It’s been three months since shares of e-commerce giant Amazon (NASDAQ: AMZN) printed fresh all time highs, a long time for investors who were getting used to it being a daily thing for much of last year. But 2022 is shaping up to be a totally different kind of year for tech stocks, and even companies as big as Amazon with their $1.5 trillion market cap are not immune. 
Coming into the end of last month, the tech sector was in free fall as investors dumped the stocks that were the most exposed to a tightening rate cycle. The tech heavy NASDAQ index dropped as much as 17% in a few weeks, with Amazon falling close to 30% over the same time period. This must have been a bit freaky for investors who held on as the company’s pandemic gains were shredded. But a low has since been put in, and there are signs that shares are ready to once again do what Amazon shares do best, march higher. 

Earnings Surprise

The first thing for any investor considering getting involved to consider is the company’s recent Q4 earnings report. It was released earlier this month and at first glance, was lukewarm. Revenue was up less than 10% year on year and below what analysts had been expecting, while guidance for the first quarter of 2022 was light. Specifically, management guided net sales to be between $112-117 billion, against the $120 billion consensus.

While this would usually have been enough to send a stock that was already in pain down to fresh lows, Amazon pulled an ace from its sleeve that did more than alleviate any headline related pain. They announced their plans to increase the price of Amazon Prime membership in the US, with the monthly fee going from $12.99 to $14.99, and the annual option going from $119 to $139, the first such increase since 2018.

Shares of Amazon had fallen the whole way into the release, but immediately gapped up 12% the next day as Wall Street worked frantically to recalculate the company’s earnings potential in light of the price change. Amazon Prime has more than 200 million members around the world, so any uptick in the price can move the needle considerably. Consider just for a moment that Amazon’s revenue for the last quarter missed expectations, but that their shares are still trading higher than they were before the release - such is the perceived impact of the change in Prime pricing. 

What this means for investors is that there’s a strong argument that Amazon will soon be leaving the recent lows behind and tracking back towards its levels from last quarter. It’s not for nothing that several of the biggest names on Wall Street have called them a top stock for 2022 in recent weeks. 

Bullish Comments

Bank of America named them a top FANG stock for 2022 last year, on the basis that the headwinds they faced in 2021 are on the verge of dissipating. The company’s next earnings report will be closely watched to see if the revenue figure can deliver an upside surprise which would confirm such a thesis. Bank of America analyst Justin Post reiterated his Buy rating on the stock at the time as well as his $4,450 price target. This suggests there’s upside of more than 40% to be had from last night’s closing price, which should be more than enough to tempt in buyers for the recovery play. 

Analysts at Monness, Crespi, Hardt took a similar view of Amazon last month as well. They expect the company to bounce back this year after its stock was “shunned” for much of 2021 as countries re-opened from pandemic-driven closures. Baird and Evercore have also recently highlighted Amazon as a solid buy, with the latter calling them a top pick among mega-cap stocks, with "arguably the single best fundamental asset in Net-land." Evercore’s $4,300 price target is right up there with Bank of America’s, and reinforces the feeling that the stock’s current level mightn’t reflect a fair value. With the latest earnings report out of the way and a higher than expected boost to income coming from the Prime price hike, there’s a lot more to like about Amazon right now than dislike.