This time last year, I predicted that Amazon’s (NASDAQ:AMZN) business would continue to grow at a rapid pace, pushing AMZN stock all the way to $10,000.
Of course, I wasn’t suggesting it would happen immediately. Rather, it might take as long as 7.5 years to get there, which would still result in an annualized return of 33% for Jeff Bezos and company.
“In my estimation, if it took 7.5 years to get to $1,000 from $100, I see AMZN stock getting to $10,000 somewhere between January 2023 and January 2025.“
In September, the markets went into full-on bear mode, knocking the S&P 500 for a 14% loss, making it the worst quarter for the index since 2008, and in the process, putting it into negative territory (-7%) in 2018. Talk about a reversal of fortune.
How did AMZN stock fare in the fourth quarter? It lost 25% to close well down from its 52-week high of $2,050.50. No matter. Early in 2019, Amazon’s managed to regain some of those losses — it’s up 7.8% year-to-date through the Jan. 9 close.
Like a young child taking learning to walk, step by step, Amazon will get back on the path to $10,000. In fact, it needs only a couple of its big initiatives to be successful to reach the lofty goal sooner rather than later.
Here are two of them:
Amazon’s Push Into Advertising
Facebook and Google account for 58% of the U.S. online advertising market. Together, the two firms generated approximately $61 billion in ad revenue in 2018. Way down in third place with 7% market share of U.S. digital ad spending is Amazon — but it’s coming on like a house on fire. Forecasts suggest that Amazon ad revenues could hit $38 billion annually by 2023.
While Amazon has little chance of catching the duopoly that is Facebook and Google, it stands a good chance of becoming a strong third wheel.
“My understanding from speaking with people in the industry is that Amazon’s retail, subscription-based and advertising revenues are fairly fluid,” said Pivotal Research senior analyst Brian Wieser. “Amazon will optimize revenue streams and profitability based on what it sees from consumers.”
So while Facebook and Google are heavily dependent on advertising, Amazon has stuff like Amazon Web Services (AWS) — $5.1 billion in operating income in the first nine months of its latest fiscal year — that are highly profitable to lean on while building some of its other businesses such as advertising.
Jeff Bezos has become a master allocator of capital, stoking the fires that need stoking, and in the process, making Amazon extremely nimble and able to act on its best ideas.
The cashier-less convenience store concept Amazon began rolling out in 2018 is going to revolutionize the industry. Amazon, which expects to open 3,000 stores by the end of 2021, could generate as much as $4.5 billion in annual sales from these stores in three years’ time. According to RBC Capital Markets, the average Amazon Go store does $1.5 million in annual sales.
Not bad for a store concept that doesn’t need any front-of-store personnel.
“Amazon Go stores could be a game changer for physical retail experience. Its in-store technology enables shoppers to have a very efficient and pleasant shopping experience,” RBC analyst Mark Mahaney wrote in a note to clients. “While not a significant financial contributor yet, we believe the overall opportunity is huge.”
The convenience store industry hasn’t changed in 25 years. Those aren’t my words — they’re Alimentation Couche-Tard (OTCMKTS:ANCUF) CEO Brian Hannasch’s.
“The experience of buying fuel and of buying items in our stores has largely been unchanged since card readers were introduced 25 years ago,” Hannasch said in a November story in ConvenienceStore News.
The convenience store business might not be as sexy as Whole Foods, but it’s got the potential to engage Amazon Prime customers wherever they live.
The stores themselves might generate $4 billion in sales, but it’s the free advertising Amazon gets to attract more Prime members that’s the real key to Amazon Go’s ultimate success.
Everything Amazon does revolves around Prime.
The Bottom Line on AMZN Stock
Nothing Amazon does surprises me anymore. It’s got a great business model and is using technology to innovate old-school industries like grocery, convenience stores, healthcare — the list goes on. I could actually see Amazon stock hit $10,000 within five years, two-and-half years sooner than I suggested last January. However, it’s got to nail at least one of these initiatives to have a chance.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.