Amazon shares finished 2021 as the biggest laggard among the mega-cap technology names, but there’s reason to believe 2022 could be a brighter year for the stock.

Shares of Amazon rose a measly 2.4% in 2021, vastly underperforming the four other so-called FAANG stocks. Apple gained 34%, Meta Platforms (formerly Facebook) saw its shares rise 23%, Netflix increased 11% and Alphabet, the year’s top tech stock, climbed 65%. At the same time, fellow tech giant Microsoft was up 51% for the year and the tech-heavy Nasdaq Composite gained 21% .

The last time Amazon delivered such lousy returns for investors was 2014, when the stock slumped 22%.

Several factors lie behind Amazon’s poor stock performance last year, according to analysts.

Amazon, like other e-commerce companies, faced tough year-over-year comparisons to 2020, when the coronavirus pandemic led to a surge in online orders. 

Consumers cut their trips to physical stores in order to avoid exposure to the virus and flocked to online retailers for everything from toilet paper and face masks to office furniture and dumbbells. The shift to online shopping boosted sales for Amazon, eBay, Etsy, Wayfair and others, benefiting their growth rates and lifting their stock prices. 

Amazon’s profits tripled year over year beginning in the second quarter of 2020, the first period to reflect the pandemic-fueled bump in business, and in the three consecutive quarters.

By spring of 2021, as a growing number of Americans got Covid-19 vaccinations, consumers began returning to stores and shifted some of their spending to pre-pandemic habits like travel and dining out. 

Even though online shopping remained robust, Amazon saw its impressive year-over-year growth rates begin to fade. In the second quarter of 2021, Amazon’s revenue grew by 27%, which was a significant slowdown from the year-ago period, when sales skyrocketed 41%.

Amazon underperformed expectations in its last two earnings reports, which also weighed on the stock, said Tom Forte, senior research analyst at D.A. Davidson, in an interview. 

Amazon’s other key businesses, cloud computing and advertising, had a “very good year” in 2021, but that didn’t overshadow the poor performance of Amazon’s core retail division, said Forte, who has a buy rating on Amazon’s stock and a price target of $3,900 per share.

“If you look at 2021 as a standalone, it shows that doing well in cloud and advertising is not enough on its own,” he added.

Investor concerns around rising costs in Amazon’s core retail business may have also contributed to the stock’s underperformance, Forte said.

Amazon had warned Wall Street for much of 2020 and 2021 that it would spend billions of dollars on coronavirus-related costs, like safety measures for front-line workers and growing its physical network to keep up with demand. 

Then, just as Covid-related costs began to temper last year, Amazon and other major corporations were hit with global supply chain constraints and labor challenges. CEO Andy Jassy said Amazon would take on “several billion dollars” of extra costs in the fourth quarter of 2021 to address those issues.  

Amazon raised wages and offered bonuses to attract workers in the tight labor market. Facing inconsistent staffing levels in some warehouses, Amazon had to reroute packages over longer and sometimes costlier distances to facilities with enough staff on hand to process orders. 

“We all knew that there were expenses associated with Covid-19, but it was a surprise to me when I realized that they were having a labor challenge,” Forte said. “It was a negative surprise and I do think it affected how the stock performed.”

After a lackluster 2021, Amazon’s stock may have an easier time this year.

The company will face easier year-over-year comparisons after growth moderated in 2021, said Guggenheim analyst Seth Sigman. Amazon may also start to reap the benefits of some of its pandemic-related investments in supply chain and logistics over the last two years, Sigman said.

“Our expectation is that growth should reaccelerate in 2022 after the moderation we saw in the last few quarters,” said Sigman, who has a buy rating and a $4,300 price target on Amazon shares.

There are multiple hangovers from last year that could still weigh on Amazon’s stock in 2021, like inflationary pressures, supply chain constraints and labor challenges, Forte said.

Still, several analysts have named Amazon as a top pick for the year, including Jefferies, Bank of America Global Research, RBC Capital Markets and Goldman Sachs, citing expectations for a rebound in its ecommerce business.

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