The pandemic has devastated many businesses across the U.S., but Amazon.com (AMZN 1.49%) didn't feel the same negative effects. The company's revenue and earnings spiked in 2020 as people turned to its e-commerce platform for many of their necessities during lockdowns.
As demand surged on Amazon's e-commerce platform, so did the company's share price, which gained 76% in 2020. But investors may be wondering what 2021 will hold for Amazon. Here are two things they should keep an eye on.
Image source: Getty Images.
1. Strong e-commerce sales
Amazon's sales spiked 35% in the first nine months of 2020, and diluted earnings per share skyrocketed 68% as people spent more time shopping online. To keep up with all of the online orders, Amazon hired more than 400,000 workers in just 10 months, and added 50% more square footage for its fulfillment and logistics businesses.
While it may seem like e-commerce demand could taper off in 2021, the return to pre-pandemic in-store shopping won't be immediate. And even when many shoppers can do so, some McKinsey research indicates that they may not want to. The research firm estimates that 70% of consumers plan to continue or increase online shopping after restrictions are over.
If those estimates are even partially accurate, Amazon's e-commerce sales are likely to remain strong in 2021 and beyond.
2. More cloud computing demand
Amazon is typically considered an e-commerce company, but the majority of its operating profit comes from the company's Amazon Web Services (AWS) business. AWS is the leading public cloud computing company, and holds about 33% of the market right now. And even with its current lead, AWS continues to grow.
In the first nine months of 2020, AWS sales increased 30% to $32.6 billion. That's impressive enough on its own, but operating profit from AWS also jumped by 50% to $9.9 billion.
So why does this matter for Amazon in 2021? Because spending in the public cloud computing space continues to increase at a rapid pace, and the current AWS growth shows that the company is already benefiting from it.
Research firm Gartner estimates that worldwide public cloud spending will reach $362 billion in 2022, up from $243 billion in 2019. The firm recently said that "The pandemic validated cloud's value proposition," and added, "The increased use of public cloud services has reinforced cloud adoption to be the 'new normal,' now more than ever."
With Amazon's current dominant position in the cloud and the growth trajectory that cloud computing is already on, the company is perfectly positioned to continue benefiting from this market in the new year.
Keep your expectations in check for 2021
While I think Amazon will continue to experience e-commerce and cloud computing tailwinds in 2021, investors should keep some of their expectations for the company's share price in check.
Just because Amazon's stock spiked 76% in 2020 doesn't mean the company will experience the same gains this year. The market was especially exuberant in 2020, in some cases without merit, and some of that sentiment could cool down in 2021.
Amazon still has a lot of opportunities to beat the market this year, but keep in mind that the strong share price performance of 2020 doesn't guarantee the same results will occur in 2021.
