Finance
Where will Amazon’s stock be in three years?
With a share price increase of 23% since the beginning of the year, Amazon (NASDAQ: AMZN) has finally recovered from the post-pandemic slump. The recovery depended on streamlining e-commerce operations and tapping into exciting new growth engines such as artificial intelligence (AI).
Let’s explore how this dynamic can continue to evolve over the next three years.
A leaner and meaner Amazon
While dismissed And cost cuts may create a sense of trepidation among middle managers and other expendable employees, but they can be great news for investors who want a more streamlined and profitable company. For Amazon, these controversial efforts are paying off big time.
The company’s first-quarter revenue rose a modest 13% year-over-year to $143.3 billion, but operating income rose more than 200% to $15.3 billion. Many of these improvements came from realizing efficiencies in North American and international e-commerce, which previously suffered from weak margins due to pandemic-era overexpansion under former Amazon CEO Jeff Bezos.
The new CEO, Andy Jassy, will cut costs significantly. He’s not just chasing short-term profits, either.
And Jassy is refocusing the company on what made it so successful in the first place: the customer experience. In the first quarter, Amazon achieved its fastest delivery speeds ever, with nearly 60% of orders from Prime members arriving within two days in the nation’s 60 largest metropolitan areas.
And in major international cities including London, Tokyo and Toronto, three out of four items arrived within two days.
Investors shouldn’t expect the massive e-commerce industry to experience massive growth big growth engine for the next three years. But the The company can leverage its scale and operational efficiency to maintain its dominant position, keep customers happy while delivering reliable profits to investors.
Medium-term growth drivers
Over the next three years, the company’s prospects will depend on how well it can make money generative artificial intelligence (AI). It has developed a pick-and-shovel business model that provides the computing power and foundational models for its Amazon Web Services (AWS) customers to build consumer-facing applications.
AWS’s first-quarter revenue rose 17% year over year to $25 billion. And the cloud computing segment continues to account for an outsized share of Amazon’s operating revenue, generating $9.4 billion of the $15.3 billion (63%) in the period.
New AI-related services such as Amazon Bedrock – which allows AWS customers to build consumer-facing AI applications using the foundational models offered – will help drive continued growth.
The company is also integrating AI into other aspects of its operations, including customer service; generating images for advertisements; and the virtual assistant Alexa, which it plans to update with AI features and re-release this year for a monthly subscription fee. None of these efforts will do that make a big influence alone, but they can create a flywheel effect, where many small wins reinforce each other and generate significant momentum.
Are Amazon Stocks a Buy?
With his forward price-earnings ratio ( P/E ) ratio of 40, Amazon stock is more expensive than the Nasdaq100 average of 31, which is a big premium to be paid for a mature company that is no longer rapidly scaling its operations.
That said, Amazon’s continued cost cuts could lead to continued improvements in profitability, even if e-commerce sales growth slows. The company’s cloud computing division, AWS, Also remains an exciting opportunity for high-margin expansion. So it appears that stocks could outperform the market over the next three years.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Wil Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has one disclosure policy.
Where will Amazon’s stock be in three years? was originally published by The Motley Fool
