Slow and steady, but Bernstein says its top Internet pick can win race
One conglomerate's share-price performance during most of the pandemic has been weak, but Bernstein is framing that within the classic story of The Tortoise and the Hare - and warning to watch out for the Tortoise in that race.
Small- and mid-cap Internet stocks are the "Hare" over the past 18 months, the firm's Mark Shmulik and team argue. So the "Tortoise" would be Amazon.com (NASDAQ:AMZN), which did well at the very start of the pandemic but has seen stock "effectively flat" since July 10, 2020:

"Now imagine that every time the Tortoise wanted to make up ground on the Hare, they faced obstacles like share erosion, wage inflation, supply chain disruption, a CEO change, and consumer online shopping fatigue," Bernstein says. "Let alone trying to resume normal investments a la one-day delivery. But enough is enough, the Tortoise wins the race."
The firm has made Amazon its top pick for 2022 among U.S. Internet stocks, giving it an Outperform rating and expecting 38% upside in a $4,000 price target.
"An eCom incumbent as a top pick in a re-open? Yes," it says. "Less time online + 50M new prime subs + big box retailers reprioritize stores = more share for the one destination consumers know will have their non-discretionary goods available."
It may be tricky in the short term (the fourth quarter, and the first quarter of 2022); unpacking the margin puts and takes "may take a minute." Expectations are probably too optimistic for the first half considering some tough comparisons and transitory costs, but they're too conservative for the second half, Bernstein says.
A number of factors should roll off during the year, including some $4.5 billion in PPE carry costs, wage inflation, and incremental supply chain costs per quarter. And "leverage is there" considering increased FBA take rates, winding down One-day, and even perhaps a Prime price increase closer to the debut of its Lord of the Rings TV series.
Meanwhile, Amazon added 50 million new Prime subscribers during the pandemic (the average Prime sub spends more than double that of nonsubscribers), and Amazon had its best "Black Friday" sales holiday ever, with sales share shifting in a big way.
The bull case for the stock is "simple," the firm says: Headwinds abate or disappear, and Amazon Web Services takes advantage of secular cloud tailwinds as return-to-office trends start workload migration to the cloud.
Even if the headwinds don't dissipate, "Amazon has the tools to improve its margins. Sometimes we like simple, and simple works."