Source: PaxForex Premium Analytics Portal, Fundamental Insight
When it comes to predicting the future of a company, investors face the challenge of navigating a landscape where factors impacting a company's performance are in constant flux. Crystal ball ownership being non-existent, making accurate predictions is a tricky endeavor at best.
However, investors engage in the art of making educated guesses about a company's future. The key lies in identifying the internal and external trends that carry the most weight and determining how well an organization is positioned to leverage opportunities and mitigate threats.
Against this backdrop, a closer look at the two pivotal trends set to impact Amazon and its stock over the next five years reveals an optimistic conclusion, which should resonate well with current and potential shareholders.
As the world's leading e-commerce player in terms of revenue and the fourth-largest company globally by market capitalization, Amazon goes beyond being a conventional online shopping platform. Currently, two of its operating units, North American e-commerce and international e-commerce, are undergoing an evolution that was previously unimaginable. The core goal of facilitating online goods sales is transforming, with advertising emerging as a new profit center for these businesses. With over 2 billion monthly visitors to Amazon's online platform, the company's 2 million-plus third-party sellers are increasingly investing in prominently featuring their products through paid advertising.
This shift has translated into a significant business for Amazon, with ad revenue reaching $14.6 billion in the last quarter of the previous year, marking a 19% year-over-year increase. This growth trend in advertising revenue reflects a strategic pivot for Amazon, showcasing its adaptability and ability to capitalize on evolving market dynamics.
While Amazon's advertising business currently constitutes approximately 8% of its total revenue, the high-margin nature of this segment suggests the potential for it to eventually surpass profits generated by its core e-commerce platform. Both domestic and international e-commerce arms are becoming more consistently profitable, partially fueled by the growth of the advertising business.
Insider Intelligence projects that Amazon's ad revenue could reach $67.6 billion in 2025, up from $46.8 billion the previous year. The broader trend of retail media advertising, in which Amazon plays a key role, is expected to surpass global television ad spending by 2028, with Amazon likely maintaining its leading position in this domain.
Another significant megatrend for Amazon is its involvement in cloud computing through Amazon Web Services (AWS). While AWS currently contributes around 16% of the company's total revenue, it accounts for two-thirds of Amazon's operating income. Analysts foresee substantial untapped potential for AWS, considering the projected growth of the global cloud computing market from nearly $700 billion in the present year to over $1.4 trillion by 2029, reflecting an annualized growth rate of over 16%.
Analysts collectively anticipate that Amazon could achieve annual revenue of approximately $1 trillion by 2028, with advertising contributing significantly to this growth alongside the sale of goods. AWS, following the growth rates of the overall cloud computing market, could generate annual revenue of around $200 billion by the same period. Profit growth is expected to outpace sales growth, especially with the higher-margin nature of the cloud computing and advertising businesses.
Predicting stock prices involves uncertainty, but considering Amazon's current valuation and trading metrics, a plausible target price for Amazon shares in 2028 could be around $400 per share. However, it's crucial to acknowledge the speculative nature of such projections in the unpredictable landscape of the stock market.
In conclusion, while future outcomes are inherently uncertain, Amazon is regarded as a solid long-term investment, driven by its diverse revenue streams and strategic positioning in key growth sectors like advertising and cloud computing.
As long as the price is above 160.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 168.19
- Take Profit 1: 176.00
- Take Profit 2: 186.00
Alternative scenario:
If the level of 160.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 160.00
- Take Profit 1: 153.00
- Take Profit 2: 145.00
