With a market capitalization of just over $905 billion, Amazon.com Inc. (NASDAQ:AMZN) stock is the third-largest member of the S&P 500, trailing only Microsoft Corp. (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL).
Earlier this year, Amazon spent some time as the world’s largest company by market capitalization, confirming the notion that Amazon stock has indeed been a once-in-a-lifetime growth story. With Amazon stock residing in rarefied air among global companies and with the shares up more than 460% over the past five years, naysayers may have some room to doubt the outlook of Amazon stock.
Those doubters may want to think twice. Amazon stock is up nearly 23% year-to-date, and Wall Street is decidedly bullish on the largest U.S. e-commerce company. The average analyst price target on Amazon stock is $2,080, well above the stock’s current levels of around $1,840.
Indeed, Amazon is at the epicenter of a seismic shift in the retail space and has been leading that shift for years. Make no mistake about it: the growth of online retail sales is a major catalyst for Amazon stock. Data confirm that there is still plenty of growth to be had in the e-commerce space, as online sales represent just 10% of overall U.S. retail sales.
“Consumers spent $517.36 billion online with U.S. merchants in 2018, up 15.0% from $449.88 billion spent the year prior,” according to a new Internet Retailer analysis of industry data and historical U.S. Commerce Department figures. “That’s a slight slowdown from 2017, when online sales grew 15.6% year over year, according to Commerce Department figures.”
More Than Just E-Commerce
While Amazon’s e-commerce dominance is impressive and a major growth driver for the company, there is more to the outlook of AMZN. To reach a market cap in the $1 trillion area, AMZN stock has to have positive catalysts other than retail sales.
As is the case with some other big-name technology companies, Amazon has a major footprint in the fast-growing cloud computing space, via its Amazon Web Services (AWS) unit.
Last year, AWS accounted for $25.7 billion of revenue, a 47% jump from 2017. A number like $25.7 billion may not seem like much when the market cap of Amazon stock is over $900 billion, but consider this: AWS is generating revenue in excess of some well-known, standalone companies.
Some analysts believe the growth of AWS is in its early innings, and that is good news for Amazon stock.
On Apr. 3, Jefferies analyst Brent Thill reiterated his Buy rating on AMZN, predicting that the revenue of its cloud-computing business can double in three years, reported Barron’s.
Thill believes AWS’ revenue can grow at a 30% clip through 2022, with the business generating revenue of $59.7 billion in 2021, according to Barron’s. The analyst has a $2,300 price target on AMZN, representing significant upside from its current levels.
While Netflix, Inc. (NASDAQ:NFLX) is viewed as the leader in the direct-to-consumer – streaming-entertainment market, Amazon is growing its streaming business.
Related to its streaming efforts and the potential impact on AMZN stock is the company’s burgeoning Amazon Music platform, which is expected to have 35 million monthly users this year, representing year-over-year growth of 17.7%.
The bottom line on AMZN is that there are plenty of growth catalysts that can and should facilitate more upside for AMZN stock.
Todd Shriber does not own any of the aforementioned securities.