Analyzing Amazon: Can They Reach $1 Trillion Market Value?

Analyzing AmazonBy Leo Copanski, 
Assistant Portfolio Manager
and Investment Analyst, ICMC

Over the past 20 years, Amazon (NASDAQ: AMZN) has become a major disruptor in the retail and supply chain sectors, leading the consumer revolt away from brick-and-mortar stores to e-commerce. Today, the company is simply the go-to online resource for consumers’ needs and wants. So it comes as no surprise that some analysts are predicting uncharted growth for the retailer.

From a CNBC article earlier this month:

“Amazon may reach the $1 trillion market value milestone as it dominates new growth markets, according to a top Wall Street firm.

J.P. Morgan reiterated its overweight rating for Amazon shares, predicting strong growth for its internet advertising business.

‘We believe Amazon has the potential to be a $1 trillion dollar company over time, as it remains early in the eCommerce & cloud secular shifts and in our view Amazon is investing in more major growth opportunities than any other company we cover,’ analyst Doug Anmuth wrote in a note to clients Wednesday.”

JPMorgan predicts that Amazon’s market value could eventually grow to more than $1 trillion largely as a result of added investments in more major growth opportunities than any other company on their radar. The stock would have to climb over 65% from the closing price on the date of the publication.

To put this into perspective, in 2017, Amazon more than doubled their market cap, returning a resounding year-end total of 55.96%. They were also the best performer in the elite “FANG” group, which includes the high-flying Netflix, Google and Facebook. Amazon is already the fourth-highest-valued company in the US market at $629 billion, but JPMorgan predicts that it may climb much higher.

Amazon has been quite the hot topic in 2017 for a multitude of reasons, including confirmed rumors of the relocation of their new and massive headquarters, as well as their best retail holiday season to date. The rumors circulating around which city they will soon call home has garnered much excitement for the cities in the review, which many believe will bring a lot of growth to whichever city is ultimately chosen.

This past holiday season was Amazon’s best ever. The company claimed between 45% and 50% of all online Black Friday sales, according to a new report from GBH Insights, as well as 45% of all online transactions on Thanksgiving Day, according to Hitwise data cited in Dealerscope. Their dominance over online retail isn’t just holding, it’s actually growing. As market share continues to increase, and engagement metrics continue to rise, even just holding steady on conversion rates will be enough to not only maintain, but grow their huge retail lead.

Catalysts for AMZN Growth

JPMorgan Analyst Doug Anmuth has given Amazon a lot of praise, and quite a lofty outlook. One JPMorgan thinks Amazon can achieve through the right mix of positive catalysts, which it outlines as follows, according to Business Insider:

  • Numerous major growth opportunities, which will drive revenue, along with better margin flow-through in 2018
  • Margin expansion despite hefty internal investment, driven by the “ongoing third-party mix-shift” and outsize Amazon Web Services and advertising growth
  • Amazon Prime subscription growth and expansion into new markets — JPMorgan has an estimate of 95 million global subscriptions
  • Amazon Web Services will maintain its strong 75% market share, with only a modest revenue deceleration
  • More international retail revenue, driven by India and recent market launches in Australia and Brazil
  • “Outsized” growth from newer revenue streams, like advertising, grocery, and Alexa/Echo products

Anmuth has a longtime overweight rating on Amazon’s stock, but he just raised his price target on the company to $1,385 a share, up from $1,375. While he’s not the most bullish analyst, Anmuth’s estimate is still 5.3% above a consensus estimate that factors in forecasts from 42 firms, according to Business Insider.

While shareholders would surely celebrate an eventual 13-figure valuation for Amazon (which would require a gain of more than 60% from today’s levels) no one would benefit more than founder and CEO Jeff Bezos, who was recently crowned the richest person in world history with a staggering net worth of $110 billion. If the stock achieves the full potential seen by JPMorgan, Bezos would hold an even more unprecedented level of wealth.

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