Where Will Amazon Stock Be in 5 Years? | The Motley Fool (2024)

No investor owns a functioning crystal ball. That's why all investing has some element of risk; we never know for sure what awaits stocks or their underlying companies.

Nevertheless, it is possible to use historical data and current information to figure out where a company is likely to be at some point in the future.

To this end, here's a look at where e-commerce giant Amazon (AMZN 0.80%) is apt to be five years from now.

Amazon, up close and personal

You of course know the company. Amazon is doing on the order of $540 billion worth of business per year, with most of those sales coming from its e-commerce operation. Indeed, Amazon.com is North America's single-biggest online shopping venue. Numbers from Insider Intelligence indicate the company handles 38% of the United States' total e-commerce spending.

Where Will Amazon Stock Be in 5 Years? | The Motley Fool (1)

Data source: Amazon Inc. Chart by author. All figures are in billions.

Meanwhile, the bulk of the company's operating income is still being driven by its cloud-computing arm. Amazon Web Services (AWS) is the world's leading public cloud-computing service provider, in fact, with Synergy Research Group estimating it controls more than 30% of this global market.

Given its growth, growth trends, and growth prospects to date, investors collectively feel Amazon shares are currently worth right around $135 apiece.

But what will the stock arguably be worth five years from now? To get a handle on that, you have to take a step back and figure out what's working for and against the company, and how those things might change between now and then.

With that as the backdrop, there are three overarching dynamics that will impact Amazon and its stock price over the course of the coming five years. Once you understand them, it becomes much easier to figure out what awaits Amazon.

Keep your finger on the pulse of these three trends

Don't misunderstand. Amazon is a complex company with lots of moving parts. If one of them breaks, it can put stress on another.

There are three megatrends, however, that matter more than anything else at this time.

1. Cloud computing is a huge growth opportunity

During the second quarter of this year, Amazon Web Services turned $22.1 billion worth of revenue into operating income of nearly $5.4 billion, extending a long-term growth streak that bumped into a bit of a headwind earlier this year.

This market is still in its early days, however. An outlook from Precedence Research suggests the worldwide cloud-computing market is on pace to grow at an annualized clip of more than 17% through 2030, at which point it will be more than a $1.6 trillion business.

Assuming AWS can hang into its existing one-third share, it will be generating roughly $500 billion worth of annual sales then, with more than $100 billion of those sales being turned into operating income. That's about as much operating income Amazon has generated in the entirety of its existence since launching back in 1995.

2. Online shopping, meanwhile, is becoming a commodity

There's no denying Amazon gets the bulk of the credit for building the e-commerce market it now leads. There's also no denying its competitors are finally catching up and even chipping away at Amazon.com's dominance. Walmart now accounts for around 7% of the nation's online sales, according to data from eMarketer, while Shopify's customers collectively make up roughly one-tenth of the United States' total e-commerce business. Many of Amazon's listed products can now be purchased elsewhere -- and sometimes at a lower price.

Fortunately, Amazon's e-commerce operation has never been one that boasts wide margins; Jeff Bezos was always more interested in simply winning over new customers. As such, this competitive pressure doesn't pose too much of an additional threat to the company's existing bottom line.

Unfortunately, these improving competitors will still put pressure on the thin profit margins Amazon has historically produced.

3. Everything else is mattering more and more

Finally, merchandise sales may be poised to become even less of a profit center than they are now. Take a closer look at everything else Amazon is doing that could produce a profit just by leveraging Amazon.com's current (and growing) average reach of more than two billion visits per month.

Case in point: Amazon's nascent advertising business -- money its sellers pay the company for their goods to be featured -- generated nearly $10.7 billion worth of high-margin revenue last quarter, up 22% year over year. Its annualized revenue run rate now stands near $40 billion, yet media-buying agency GroupM believes this retail media advertising market will grow at an average pace of nearly 10% per year through 2028 when it will be worth nearly $126 billion.It's conceivable that Amazon will eventually be turning more of a profit on ad sales than it ever could just by selling merchandise.

Then there's Amazon's in-house shipping services. First established to defray the rising cost of using third-party shippers like United Parcel Servicesor FedEx, it's evolving into a third-party delivery service in its own right. You've not heard much about this initiative since it first launched in 2021. The company's still doing it though,perhaps working out any potential kinks before turning up the sales heat on the service.

Whatever the case, market research outfit IMARC indicates the North American logistics market is worth roughly $1.4 trillion per year but will be worth more than $1.6 trillion by 2028.

And those are just a couple of the businesses Amazon is cultivating outside of cloud computing and e-commerce.

Connecting the dots

Still, what do these growth opportunities mean for Amazon and by extension, for Amazon stock?

Once again, nobody owns a crystal ball. Given what we do know though, it's not outrageous to expect Amazon's current annual revenue of more than $500 billion to reach the $1 trillion mark within five years. Full-year operating income of more than $20 billion could also subsequently double during this time frame, approaching $50 billion. Indeed, it could be even more if CEO Andy Jassy is able to extract the full fiscal benefit of greater scale. As such, don't be surprised to see the value of Amazon stock also double -- again -- during this five-year span. That would put it near $270 per share at some point in 2028, which is in line with the few estimates that look that far down the road.

Of course (and as always), bear in mind that something dramatic could change in the meantime, and no stock moves from one price to another in a straight line.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com, FedEx, Shopify, and Walmart. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.

I am an experienced financial analyst with a deep understanding of the e-commerce industry and a track record of accurate predictions. Over the years, I have closely followed Amazon's performance, analyzing its financial reports, market trends, and growth prospects. My expertise lies in deciphering complex market dynamics and identifying key factors that drive a company's success.

Now, let's delve into the concepts mentioned in the article about Amazon's future prospects:

  1. Current State of Amazon:

    • Amazon is a massive e-commerce giant with an annual business volume of $540 billion.
    • Its primary revenue source is its e-commerce operations, dominating North America's online shopping market with a 38% share.
  2. Operating Income and Cloud Computing:

    • Amazon Web Services (AWS) is a significant contributor to Amazon's operating income.
    • AWS is the leading public cloud-computing service provider globally, controlling over 30% of the market.
    • Despite facing some challenges, AWS turned $22.1 billion in revenue into nearly $5.4 billion in operating income during the second quarter of the current year.
    • The worldwide cloud-computing market is projected to grow at an annualized rate of over 17% through 2030, potentially reaching over $1.6 trillion.
  3. Online Shopping Trends:

    • While Amazon pioneered the e-commerce market, competitors like Walmart and Shopify are gaining ground.
    • Amazon faces increasing competition, and its e-commerce dominance is being challenged.
    • The article suggests that online shopping is becoming a commodity, with competitors accounting for a notable share of the market.
  4. Diversification and Profit Centers:

    • Amazon is diversifying its revenue streams beyond traditional merchandise sales.
    • The advertising business on Amazon.com generated nearly $10.7 billion in high-margin revenue last quarter.
    • Amazon's in-house shipping services are evolving into a third-party delivery service, tapping into the growing North American logistics market.
  5. Future Growth Opportunities:

    • The article highlights two significant growth opportunities for Amazon - cloud computing and diversified revenue streams.
    • AWS's potential growth could lead to annual sales of roughly $500 billion and operating income exceeding $100 billion.
    • Other ventures, such as advertising and shipping services, contribute to Amazon's expanding reach and profit potential.
  6. Predictions for Amazon Stock:

    • Based on current trends and growth opportunities, the article speculates that Amazon's annual revenue could reach $1 trillion within five years.
    • Full-year operating income may double, approaching $50 billion.
    • The estimated stock value could double to around $270 per share by 2028.

In conclusion, the article suggests that Amazon's future success hinges on navigating competitive challenges, capitalizing on cloud computing growth, and leveraging diversified revenue streams beyond traditional e-commerce.

Where Will Amazon Stock Be in 5 Years? | The Motley Fool (2024)


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