Amazon (NASDAQ:AMZN) is one of the most globally recognisable brands. Part of this speaks to the incredible reach of the platform and the products it offers. This is backed up by its mind boggling $232bn in revenue recorded in 2021. Yet if I’d invested £1,000 of my money in Amazon shares a year ago, it’s surprising what they’d be worth at the moment.
Checking the historical performance
Over the past year, the Amazon share price is actually down 31.8%. Almost 12% of this fall has come in just the last month. So my £1,000 would be worth only £682. If I’d parked my money here a year ago, I wouldn’t be best pleased. However, it’s one thing to have an unrealised loss in isolation. But I also need to consider how other investments over this time frame would have performed.
A good benchmark is looking at the Nasdaq 100. Over the same period, it has lost 26.7%, hovering around 11,000 points at the moment. From this, I can see that Amazon has underperformed the index, but the performance is similar in that both the stock and the overall market have fallen severely.
Another comparison is to look at competitors. This isn’t perfect as Amazon is fairly unique and has a dominant position in the e-commerce space. However, I’d say Alibaba is similar it. Alibaba shares are down 55% over the last year, much worse than the American giant.
Better odds for the next year
When I broaden my timeframe to the past five years, we haven’t seen such a prolonged drawdown in the share price as we have now. I can interpret this in a couple of different ways. I could argue that this means something fundamentally different is going on that could spark a longer-term fall in years to come. Another view is that this is a multi-year opportunity for me to buy with the aim of the stock eventually rallying to previous highs.
I feel the latter is the most likely outcome. For a start, Amazon has a strong grip on the marketplace when it comes to e-commerce. However, it has been working hard to generate diversified profits, such as from Amazon Web Services and Prime Video. Going forward, this broader range of revenue streams should allow it to smooth out underperformance from one specific area.
Further, I think that part of the drop in recent months is simply to do with broader negative market sentiment. Rising interest rates in the US are fuelling comments that the country will go into a recession next year. Clearly, this would be a negative for the stock market. When sentiment turns sour, it’s typically the growth stocks (particularly tech names) that suffer the most.
Don’t get me wrong, the US could easily slide into an economic downturn. But my point here is that it’s not specifically Amazon that’s performing badly. When we hit the recovery stage of the economic cycle, I’d expect the share price to go higher.
On that basis, even with a disappointing last year, I’m not ruling out investing £1,000 in Amazon shares in coming months for long-term gains.
