Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

How Has Amazon Stock Done Since the Beginning of 2020?

By Lawrence Rothman, CFA - Dec 23, 2020 at 8:56AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is the pandemic fueling this e-commerce giant's growth, or is there more to the story?

Amazon's ( AMZN 2.57% ) stock performance has made shareholders very happy in 2020 with a 73.5% return year to date. This was nearly five times the S&P 500's appreciation over the same timeframe.

While that's great for existing shareholders, have the shares run out of steam? To find the answer, we will need to delve deeper into the e-commerce giant's metrics to figure out if it can maintain the strong revenue and profitability growth trajectories that have fueled this year's sharp share price increase.

An upward sloping graph next to the numbers 2020.

Image source: Getty Images.

What's behind Amazon's 2020 stock price jump?

With physical stores closed for part of the year and the coronavirus pandemic forcing people to stay at home more, many consumers were forced to turn increasingly to online shopping. This has obviously helped Amazon. In just the third quarter, Amazon's sales (after excluding foreign exchange translations) grew by 37% compared to last year. And, despite taking on higher costs for shipping and fulfillment due to COVID-19, Amazon's operating income nearly doubled to $6.2 billion.

No doubt, this has been a good year for Amazon, and it had nice momentum heading into the holiday season, with early reports noting it got off to a good start for the company. But can the company maintain this strong growth going forward, particularly with the U.K., U.S., and Canadian governments approving COVID-19 vaccines that will eventually allow shoppers to return to traditional brick-and-mortar retailers safely?

Is there more upside for Amazon?

There are good reasons for optimism. Fortunately, Amazon was already growing rapidly heading into this year. A return to people shopping in stores doesn't mean the company's revenue and profitability increases will come to a halt. Amazon's focus on the customer has served it well for a long time, and this is showing up in the company's results. Its revenue grew from 2015's $107 billion to $280.5 billion in 2019. Skyrocketing profitability accompanied this top-line increase with operating income growing to $14.5 billion, about seven times higher than 2015's total.

Aside from its e-commerce site, Amazon sells devices like the Kindle and Alexa. There is also its hugely popular Amazon Prime service that offers unlimited shipping on numerous items and a streaming service for a subscription fee.

The company also has a rapidly growing (and high-margin) business, Amazon Web Services (AWS). This is its cloud-computing division, which helps companies use data to lower costs and make better decisions. In the latest period, the unit's adjusted revenue rose by 29% to $11.6 billion and the segment's operating profit increased by 56% to $3.5 billion. Growth for AWS looks set to remain strong, with CFO Brian Olsavsky stating on the third-quarter earnings call that "We continue to see companies meaningfully growing their plans to move to AWS."

Investor takeaway

It is hard to predict what will happen to a company's stock price in the short run. However, with Amazon's dominance in e-commerce (fueled by offering low prices and fast delivery) and AWS providing tangible benefits to its cloud computing clients, betting against Amazon over an extended period seems foolhardy. If you have a long investment horizon, any short-term volatility will get smoothed out as the company continues to execute its plans.

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned, Inc. Stock Quote, Inc.
$3,515.60 (2.57%) $88.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/07/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.