Is Amazon.com (NASDAQ:AMZN) stock a multibagger stock even today? The case for a $3330 Amazon stock price.
The life of Amazon.com Inc. (NASDAQ:AMZN) as a public company has been a story of investing folklore. If one had invested $10,000 in Amazon stock at the time of its IPO, it would be worth nearly $6.45 million, at the last closing price of $965.9 a share. In percentage terms, the investment would have translated into an annualized return of over 38% over the last 2 decades. These are the kind of returns the best among investors dream of, and most certainly, long term holders of Amazon stock will be delighted with these multibagger returns. Amazon has today grown into one of the biggest technology companies, valued at over $464 billion. The phenomenal run of Amazon stock raises the important question; Is Amazon stock a multibagger even today? Should investors be buying more Amazon stock even now?
Amazon Retail Segment
The e-commerce segment accounts for a major share of Amazon's overall revenue, contributing 88% of the firm's top line in 2016. The retail segment contributed $120.8 billion to Amazon's overall revenue in FY2016, which is up from $14.45 billion in FY 2007, translating into an 8.4x absolute growth, or 26% average annual growth over the last 9 years. To put things in perspective, Amazon saw its top line grow by just under 22% year-over-year, through the first half of 2017. And, if you think that Amazon is anywhere near slowing down, think again. According to eMarketer, e-commerce sales will make up a tenth of global retail sales in 2017, which means that business has a significant headroom to keep growing.
According to the eMarketer report (referenced above), global retail sales are expected to hit $22.74 trillion this year with brick-and-mortar retail sales making up nearly 90% of that total. In light of this, Amazon's recent acquisition of Whole Foods Market (NASDAQ:WFM) is a smart move which could help the company gain a greater share of the total retail pie. All in all, Amazon's retail business should continue to grow at a solid pace, in-line with its historic pace.
Amazon's Cloud Dominance
It is no secret that Amazon's AWS (Amazon Web Services) platform is the leading cloud platform today. The segment has been reporting strong growth numbers, quarter after quarter, with 1H17 revenue topping $7.7 billion, up 42% over the first half of 2016.
According to Synergy Research, the cloud market is expected to grow into a $200 billion market, growing at an average annual rate in the high 20s through 2020. AWS currently accounts for nearly 33% of the global cloud infrastructure market and should be able to maintain its lead in the industry over the next few years. Even a 20% share in FY 2020 will equate to AWS revenue of $40 billion, a huge jump from the $12.22 billion print in 2016, implying an average annual growth of nearly 35% over the next 4 years.
Amazon Stock Price Target Of $3,330
Yes, you read that right. MKM Partners analyst Rob Sanderson predicted last week that Amazon.com, Inc. could be worth $1.6 trillion in less a decade, which equates to a share price of $3330 (using the current number of O/S shares). Sanderson's price target implies an upside of 245% over the last closing price. To put it another way, Sanderson believes that Amazon stock is a multibagger even today. But, more importantly, what does Amazon need to do to get to that kind of a valuation?
As reported by Marketwatch, the MKM Partners analyst makes the following assumptions:
- Amazon’s retail growth in the U.S. will grow three-fold within the next nine years compared with the nine-fold increase seen over the preceding nine year period,
- Amazon's international retail business will be as valuable as the US business, and
- The AWS business will grow at a compounded average annual growth rate of 20% over the next 8 years.
It's interesting to note that given the above assumptions, Sanderson believes that his outlook is conservative. And well, given the pace at which Amazon has grown the three segments, Sanderson's assumptions shouldn't be difficult to achieve.
Shares of Amazon have had a solid year, gaining nearly 29% year-to-date. Given Amazon's lack of a stable bottom line and the aggressive valuations it currently trades at, Amazon stock wouldn't make it past the screens of most value investors. However, if the recent commentary from MKM Partners analyst Rob Sanderson is anything to go by, Amazon stock could well be a multibagger play even today.
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