Did you know that the tech-heavy Nasdaq 100 actually lagged the S&P 500 in 2021? Sure, the Nasdaq 100's 27.5% total return was quite good, but it wasn't quite enough to catch the S&P 500's 28.7% total return. It was a rare underperformance for large-cap tech, which has nearly doubled the returns of the overall market during the past five years.
Also worthy of note is that within the Nasdaq, certain competitively advantaged long-term winners underperformed by even greater degrees last year, making them good candidates to deliver market-beating returns in 2022. These include e-commerce leaders Amazon (AMZN 3.73%) and JD.com (JD 5.25%), along with major telecom T-Mobile (TMUS -0.29%).
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Amazon and JD.com will have easier comps in 2022
Across the board, e-commerce stocks found 2021 to be more difficult than 2020. This should not be surprising. Their growth soared during the initial phases of the COVID-19 pandemic as people who were avoiding public spaces ordered more of the goods they needed online. But a year later, those periods of surging growth presented difficult comparisons, and as global economies reopened and people relaxed their social distancing efforts amid the rollout of vaccines, the growth rates for e-commerce decelerated.
Though the Motley Fool preaches the virtues of long-term investing, the fact is that many investors feel the need for the companies in their portfolios to outperform every year or quarter, and for those who see investing in that light, the e-commerce sector, with its decelerating growth, was a "no go" space in 2021.
But looking ahead to 2022, the comps will once again get easier, and I like the competitive advantages for Amazon in the U.S. and JD.com, which is listed on the Nasdaq 100 though it's a Chinese company.
Amazon's overall top-line growth disappointed last year, due both to the aforementioned difficult comps and supply chain pressures that dented its growth and increased its costs. After a banner 2020, Amazon's stock only rose 2.4% in 2021, well behind the major indices and its FAANG peers.
However, Amazon is more of a conglomerate than a mere e-commerce player these days. Its lower-revenue but higher-profit Amazon Web Services and digital advertising segments grew by leaps and bounds. AWS growth actually accelerated, as did Amazon's "other" category, which brings in most of its revenue from digital ads.
Recent economic growth numbers for the U.S. have been strong, so those two segments should continue to perform well as more enterprises migrate to cloud computing and more ad dollars flow to online and streaming platforms.
Meanwhile, since Amazon's e-commerce segment had challenging comps last year, those will get much easier in 2022. And hopefully, supply chain issues will diminish as well, which will ease pressure on profitability. Look for Amazon's top-line growth to accelerate this year as those trends take hold.
JD.com looks relatively well-positioned in the new era of Chinese e-commerce
The Chinese government's regulatory crackdown last year sent virtually all Chinese tech stocks into a tailspin, and JD.com was no exception: It fell by more than 20% in 2021, and now trades 35% below its all-time high.
However, while Beijing is looking to rein in the tech sector broadly, JD.com may actually be helped competitively by new regulations. For instance, its rival Alibaba (BABA 0.71%) traditionally used its market-leading scale to force brands into exclusivity deals. But regulators in the country recently banned that practice, so JD.com is now able to compete on a more level playing field.
One can already see this beginning to positively affect JD.com's results. Last quarter, it showed surprising strength, considering China's economic headwinds and global supply chain issues. Revenue grew 25.5%, with product revenues up 22.9% and services revenues up 43.3%. That was much better than Alibaba's 16% growth (excluding its acquisition of Sun Art retail). And Alibaba's overall results were buoyed by 33% growth in its cloud segment, which JD.com doesn't have.
While JD.com has traditionally been strong in electronics and other high-end products, it's now competing more effectively in general merchandise, perhaps due to new regulations and enforcement. Revenues from its general merchandise segment grew 29.3% last quarter -- above the company's overall growth rate and above Alibaba's.
Unlike Alibaba, JD.com made the huge investments necessary to own its entire logistics infrastructure. Those outlays are starting to bear fruit -- and delivery and inventory control could become key differentiators in the Chinese e-commerce space now that exclusivity and predatory pricing are effectively banned. JD.com is also reaping above-trend logistics revenue growth from third parties -- its top line in that segment grew 53% in Q3. And JD.com's marketing services to merchants grew by a strong 35%.
If Chinese stocks bounce back in 2022, JD.com could be one that bounces back better.
T-Mobile should take market share in the 5G era
The telecom sector also had a rough 2021. In 2020, it experienced a big surge in wireless and broadband subscriptions, but growth decelerated last year. Investors may fear the markets for these tech utilities have become saturated, and worry that the major players will have to engage in price wars to attract customers.
But that shouldn't really worry T-Mobile, which sold off with the sector and was down 14% in 2021. Its operating results have been strong, and it has long been a "share taker" throughout its corporate life. Since branding itself the "un-carrier" about a decade ago, T-Mobile has made a habit of shaking up the U.S. wireless industry with lower-priced plans and customer-friendly features in an industry that isn't exactly known for them.
Now, T-Mobile has another important advantage: It operates the best 5G network. Its 2020 acquisition of Sprint brought over key mid-band spectrum for 5G, which offers game-changing speeds, as opposed to low-band, but solid range, where high-frequency millimeter-wave spectrum falls short.
As of December, T-Mobile was delivering mid-band 5G to a coverage area that includes more than 200 million people -- a feat its rivals won't match for another two years. By then, T-Mobile expects to have 300 million people within its 5G coverage area, which will extend into more rural parts of the country.
Those rural regions account for some 40% of the U.S. population, and T-Mobile so far has much weaker penetration in those markets than its peers. T-Mobile also has a low market share among enterprise accounts, but more of those could well switch to it for its superior 5G capabilities.
As more customers acquire 5G-capable phones this year, and as T-Mobile moves toward the end of its long integration, look for the "un-carrier" to win its share of net customer additions in 2022.
