Finance
Where will Amazon’s stock be in three years?
although Amazon (NASDAQ: AMZN) has been a fantastic company to own for the past twenty years, but in more recent times this simply hasn’t been the case. The shares are up just 10% in the last three years (as of June 3).
This modest profit, which lags behind the Nasdaq Composite‘s returndoesn’t change that ecommerce and cloud computing juggernaut is one of the most dominant companies on planet Earth. And that’s why investors should still keep it on their radar.
Where Could Amazon’s Stock Be in Three Years?
Online shopping
It’s a surprising statistic, but about 38% of all online spending in the US goes through Amazon.com. This is significantly higher than its rivals in second and third place (Walmart And Apple, which have approximately 6% and 4% respectively). That lead just goes to show you the stranglehold Amazon has on e-commerce.
I have no doubt that this will still be the case in 2027. With its relentless focus on customer obsession, Amazon offers shoppers millions of items at low prices. And thanks to its extensive logistics network, fast and free shipping is offered in a cost-effective manner that only enhances the consumer experience. It was recently reported that Amazon has already added 16 million square feet of warehouse space this year in an effort to strengthen its delivery capabilities.
In the US, online shopping accounts for less than 16% of all retail spending. That share has risen from 10% exactly five years ago. Assuming this slow and steady rise continues, this gives Amazon a nice long-term tailwind to achieve more revenue growth.
Amazon’s growth engines
Amazon is perhaps one of the most innovative companies out there. Despite being primarily known to the general public as an e-commerce company, there are other segments that will continue its expansion at a brisk pace.
Many investors are familiar with Amazon Web Services (AWS), the company’s leading cloud computing division. AWS typically experiences double-digit revenue growth. And in its most recent quarter (Q1 2024, ending March 31), it reported an excellent operating margin of 37.6%.
Investors can expect AWS (which accounted for 16% of revenue in 2023) to become a more important driver of revenue and profits in the future. The shift from on-site technical infrastructure to external infrastructure, coupled with the desire of many customers to integrate artificial intelligence capabilities in their operations, AWS offers a nice tailwind.
Then there’s digital advertising, an area in which Amazon has seen tremendous success thanks to its popular online marketplace. Ads were introduced to the Prime Video streaming service in January, providing another valuable monetization asset.
During the last quarter, digital advertising resulted in annualized revenue of $47.2 billion. This scale only puts it behind Alphabet And Metaplatforms when it comes to domestic market share.
Changes in rating
It doesn’t take much convincing to get someone to like Amazon’s business. It dominates multiple verticals and has meaningful growth potential.
But investors should consider the valuation in their analysis before deciding what to do with the stock. While Amazon hasn’t been a huge investment over the past three years, its shares are up 112% since the start of 2023. As a result, the valuation is not as attractive as it was about 12 months ago, when the stock traded at a price-to-sales ratio (P/S) of just 2.4.
Today the P/S multiple stands at 3.2. That may seem expensive, but it’s in line with the stock’s 10-year average. Given the potential for significant sales and income gains over the next three years, investors will likely be rewarded if they add Amazon stock to their portfolio.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Meta Platforms and Walmart. The Motley Fool has one disclosure policy.
Where will Amazon’s stock be in three years? was originally published by The Motley Fool
