2020 is not even over and Amazon is the biggest winner of the year. The shares of Amazon are already 43% up and it has emerged as very popular in this corona era going. Even not all the businesses are not all benefitting in the crisis which has forced the offices and stores to close which haslead to the increase in the demand for e-commerce, video streaming, and cloud computing. The increase in 43% has also lead to an increase in the market cap of about $400 billion which is a large value than other US companies.
Even the analysts have also examined the stock can hit around $5000 in the long term which is almost double its current prices i.e. 2600$. According to the analysts, it is said that the company can easily benefit from the ‘hidden value multiplier’ which helps the company to expand in the different markets like media, cloud computing, and groceries. Amazon is also seen transitioning by analysts as service providers totally based on businesses with a high margin like AWS (Amazon Web Services) and also the third party marketplace of Amazon. The revenue has also grown from services from about 28% to 43% in the last few years. The analysts value the media business of Amazon at 500$ billion and Amazon Web Services at $560 billion which accounts for the total market cap of the company around 1.3 trillion.
The large numbers’ law
It can be seen why the market is bullish for Amazon now as its competitive advantages have become evident and it is the best period for them to snatch the market share in the pandemic. But the question arises, can the stock still get doubled which means reaching about $2.5 trillion. The better question is that if anything can stop Amazon? After Walmart, Amazon is earning the highest revenues in the United States. Last year, Amazon had generated around $280.5 billion in revenue. This figure will go up as a lot of businesses have shut in the pandemic and are the worst hit. And the sales of e-commerce are surging. In the First quarter, the sales rose around 26% and if the company delivers 25% a full-year growth, then revenue can be $350 billion.
Well, adding 70$ billion is not easy adding every year. Definitely, Amazon is also going to respond to the gravitation pull of math because it can grow really fast. The investors have also speculated is the market value of the company can make up to $2 billion. The good question is that if the revenue can reach around $1 trillion which is almost double from Walmart, the largest company in revenue today.
Amazing also needs to feed its appetite for growth that is why it is moving into areas like health care and groceries. It is extending its growth runway. It is also benefiting from competing with the industries which are already having secular growth like cloud computing and e-commerce. This means the company can have an easy time maintaining the growth rather than the size of the average company.
As per the company evaluation of the P/E ratio (Price to earnings) above a hundred so the interested investors are expecting the growth of Amazon as the profits will rise with the businesses like AWS (Amazon Web Services) and also from the third-party marketplace of Amazon. It was expected that Amazon would have around e-commerce sales of 38.7% in the US according to e-marketer. Amazon has a Prime membership program, a third-party marketplace, and also the network of the fulfillment centers, Amazon has a monopoly in e-commerce because it has no true peer in the United States. The scrutiny has been attached by Amazon for the usage of data from the marketplace for competing with third-party sellers. Well, the European Union is also planning to levy antitrust charges on Amazon for this particular reason. CEO of Amazon, Jeff Bezos said that he will definitely testify to the house committee which is investigating the antitrust violations by companies like Facebook, Amazon, alphabet, and apple. It is unlikely to see the full-on breakup but the restrictions could be added by regulators for competing with the third-party sellers.
The success of Amazon and its threat to other retails has definitely attracted a lot of substantial competition. The stock appreciation of Amazon recently portrays the accelerated growth of the company and the gain of market share which the investors expect Amazon to reap from the pandemic Coronavirus. Now the consumers are even more dependent on its cloud computing business and e-commerce, the future of the company looks bright rather it just months ago. The stock doubling will take time and the opportunity is also there which is based on growth which is visible in its business and on the ability of Amazon to ramp up the profits.