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3 Things That Could Drive Amazon's Growth Higher in 2021

By Parkev Tatevosian, CFA – Jun 23, 2021 at 7:45AM

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Amazon had a great year in 2020, and it has a good chance to carry that momentum through 2021.

Amazon (AMZN 0.58%) is off to a great start in 2021. Revenue surged in the first quarter as folks maintain habits formed during the most acute phase of the pandemic -- ordering online and reducing trips to stores. 

The boost in sales could continue for the rest of 2021 as several factors are playing in Amazon's favor. In the U.S., fiscal stimulus from the government will continue as qualifying families start receiving monthly child credit payments in July. Price increases across the board could cause another 200 to 400 basis points of revenue growth. And finally, companies from Walmart to Home Depot to Costco are increasing wages for employees.

Let's take a closer look at these three things with the potential to drive added growth for Amazon in 2021.

An employee in a warehouse.

Image source: Getty Images.

1. Stimulus spending continues

Starting July 15, households in the U.S. with children under 17 years old will begin receiving a monthly payment of either $250 or $300 for each child if their income qualifies them for it. Those with children younger than six will receive the larger payment.

This stimulus payment, which was adopted as part of the American Rescue Plan, will give folks in the U.S. more money to spend. In Amazon's first quarter, 59% of overall sales came from its North American segment. And certainly, some part of those stimulus funds will be spent on Amazon.com.

2. Inflation is gaining steam

The consumer price index, which measures prices for a basket of goods, jumped by 5% in May from the year prior. That's the highest increase dating back to August 2008. With prices going up on products for numerous reasons (some that are temporary and related to the pandemic and supply chain disruptions), third-party sellers on Amazon.com are likely to increase the prices of the goods they sell. Amazon gets a percentage of third-party sales as commissions, so an increase in their prices is likely to boost revenue for Amazon.

Further, Amazon sells its own products and can take this opportunity to enact modest price increases on those as well. This could be an opportune time to raise prices as it's unlikely to lead to lost sales since many other businesses are doing the same. 

3. Wages are rising

Lastly, folks in the aggregate will have more money to spend in the second half of 2021. Several large employers have announced wage increases as part of efforts to fill positions that remain vacant. Some are even offering bonuses for employees to join. Businesses in areas recovering from COVID-19 are experiencing surging demand as folks leave their homes. However, businesses are having a hard time getting workers to come back. A combination of factors, from the fear of contracting COVID-19, lack of viable child care, and boosted unemployment benefits, reduces people's desire to enter the labor force.

That's created an imbalance in favor of workers receiving offers for employment that come with better wages than before the pandemic. The shortages are likely temporary. Most schools will return to in-person learning starting in August, giving parents the option to return to work. Vaccinations have proven effective in reducing the spread of COVID-19 and are being administered at a rapidly increasing rate. The fear of contracting COVID-19 could be a lesser risk in the second half of 2021, and the boosted unemployment benefits expire in September, so that will cease being a disincentive for work. 

Investor takeaway

Overall, these three factors should boost sales for Amazon for the rest of the year. Indeed, the company guided investors to look for revenue of $113 billion at the midpoint in its second quarter, which would be a 27% increase from last year's already boosted figures.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Costco Wholesale, and Home Depot. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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