Amazon share price forecast for 2020 and beyond
Will the online giant reach the $1tr market cap milestone, and what will this mean for Amazon stock price predictions?
Whether you love or loathe Amazon, there is no denying it’s a retail phenomenon. What started out in 1994 as an online book store has gone on to become one of the strongest consumer brands in the world, selling millions of different products.
It has also expanded into new markets, including cloud services, video streaming, movies, publishing, groceries and more.
Just two years after it was founded Amazon generated $15.7m (£12.1m, €14.26m) revenue, which rose to a massive $232bn in 2018.
According to founder Jeff Bezos, the first investors put in around $50,000 each for a stake of a little less than 1 per cent. If they had held on to their entire stake they would now be worth $3.5bn.
Twenty-five years later is it still a good investment choice? Let’s take a look at Amazon’s stock analysis.
What it’s worth
Amazon is one of the world's top companies by market value. When the company released its 10-K and annual report at the start of 2019, it had a market capitalisation of $755.7bn.
The company's net income rose from $3bn in 2017 to $10.1bn in 2018, thanks to a 31 per cent gain in revenue, from $177.9bn to $232.9bn.
In 2019 net income decreased to $2.1 billion in the third quarter, or $4.23 per diluted share, compared with net income of $2.9 billion, or $5.75 per diluted share, in third quarter 2018.
The business model
Amazon.com offers a vast range of products and services, which accounted for nearly 50 per cent of all online sales in the US in 2019, generating $258bn for the company in the US alone.
Amazon’s Marketplace – where it sells other people’s products for a percentage of the sale – represents an increasingly large portion of its ecommerce business. By the end of 2018, sales generated from Marketplace were more than double that of Amazon’s direct sales in the US.
While most consumers know Amazon as a retailer, its cloud-based computer services is the number one vendor in the market. According to market research firm Canalys, Amazon Web Services (AWS) has a 32 per cent market share of the global market, with a growth of $2.3bn, equal to the year on year increase of the next three players combined.
In the third quarter of this year, it contributed 71 per cent of Amazon’s total operating income and 13 per cent of its total revenue.
In addition, the internet giant has its fingers in range of other profitable pies, from Amazon Garage to Home Services. It has just launched a chain of grocery stores in LA, while last year it acquired PillPack, an online pharmacy company, for just under $1bn, and is now offering a prescription delivery service to its Prime customers.
Every new brand Amazon buys, or new business it starts, is a disruptor, because its brand is so strong. It doesn’t give the consumer anything new, it just does it cheaper, faster and on a massive scale.
When Amazon announced it was creating a company to provide healthcare for its employees, major healthcare companies saw billions wiped off their market caps. The same thing happened with retail stocks when Amazon bought Whole Foods.
Thanks to its loyal customers Amazon has been able to gather huge amounts of customer data and create a rapidly growing source of advertising revenue. eMarketer forecasts that revenue will grow 50 per cent per year in 2020, expanding its share of the US market from 4.1 per cent in 2018 to 7 per cent. While this isn’t a huge percentage, Amazon is the only real threat to Google and Facebook, who control 37.1 per cent and 20.6 per cent of the market, respectively.
Amazon stock price history
Over the last five years, Amazon shares have gained a massive 476 per cent, which is more than seven times the S&P 500's 67 per cent return.
They hit an all-time high of $2,050.50 on 4 September 2018, when the company briefly hit a $1tr market cap, but then crashed to $1,340 per share two months later.
Prices continue to fluctuate, and the internet giant saw another big drop at the end of October of more than 9 per cent, following the release of its disappointing third quarter results.
Bezos blamed his company’s profit drop – the first in more than two years – on the provision of the one-day delivery service to Prime customers, costing Amazon $35 billion in shipping in 2019, which is more than twice what it spent two years ago.
“It’s a big investment, and it’s the right long-term decision for customers,” he said.
Another reason for its weak performance could be investors’ concern over how long Amazon can maintain its revenue growth, given its increasing size.
Amazon expects its fourth quarter revenue guidance to be between $80bn and $86.5bn. While this represents a growth of 11 to 20 per cent, it’s below analyst estimates of $87.4 bn.
At the time of writing, Amazon had a market capitalisation of almost $869.19bn and a share price $1,816.
Amazon share price forecast 2020
Could 2020 be the year that Amazon crosses the $1tr market cap milestone – and stays there? The company briefly topped the trillion-dollar mark in July of this year, for the first time since September 2018, but can it sustain its status as a trillion-dollar company?
Morningstar analyst RJ Hottovy believes it could, and predicts the online giant could be worth as much as $1.2td in 2020.
Amazon share price forecast in 2020 is just as bullish, with analysts predicting a positive outlook for future sales, profit and cash flow growth. Longforecast.com predicts Amazon shares will trade at a maximum price of $1,986 in September 2020.
According to CNN Business, 44 analysts offered a 12-month Amazon price prediction, with a low estimate of $1,900 and a high estimate of $2,573. While Jeremy Gleeson, manager of Axa Investment Management, believes there could be a 15-30 per cent rise in Amazon’s share price in 2020, due a “massive growth” of AWS.
“The cloud business grew by 37 per cent last year, but it is also highly profitable, which is unusual for a high growth business,” he said.
Amazon stock price prediction over the next five years is also bullish. Morningstar predicts an average annual revenue growth of approximately 16 per cent for the five years ending 2023, with revenue reaching $490bn, while Wallet Investor describes Amazon as a “very good long-term investment”. The forecasting service predicts its stock will trade at $3,841 by November 2024, meaning an investment today, would see revenue at around +119.37 per cent in five years.
Gov Capital offers the most optimistic outlook of Amazon stock analysis, stating it is set to reach $10,720 by November 2024.
Morningstar cites a number of contributing factors to its bullish predictions, including Amazon’s move into physical stores, greater engagement among Amazon Prime members, increased third-party sales, and international expansion – however, the unsung heroes in all this are AWS and Amazon Advertising. Hottovy says they are the most “misunderstood and underappreciated pieces of the Amazon valuation puzzle”.
Hottovy also believes they will help to “insulate” the company in the event of a recession, which he says reinforces the company's “vastly different business mix”, compared with the 2008-09 crisis, when the share price dropped 60 per cent.
According to Hottovy even the e-commerce business is unlikely to be deeply impacted, due to Amazon’s competitive prices.
“E-commerce companies react more like defensive retailers during periods of economic softness, with consumers still relying heavily on marketplaces like Amazon because of competitive pricing and the convenience of expedited shipping,” he said.
There is still growth for its online stores, with US online retail segment margins predicted to reach 5.5 per cent by 2028 (compared with 4.5 per cent in 2018). Amazon's international online retail segment margins are also expected to turn positive in 2021 as more established markets like Europe and Japan benefit from Prime membership.
While the high street suffers as brands compete with online shopping, Amazon is bucking the trend by investing in bricks and mortar. While physical stores represent a small percentage of Amazon's future valuation (around US$20 billion according to Morningstar), they are complementary to its other businesses. Hottovy believes Amazon's new stores will help to “bring Prime membership into the physical world and unlock new subscription monetisation opportunities”.
It’s not all good news, and there is plenty of activity that could disrupt Amazon’s future price.
The company’s growing size has made it a prime target for politicians, who question whether online giants have become monopolistic. However, Donald Trump’s anti-Amazon stance isn’t just about business.
Amazon owns the Washington Post, which isn’t US president’s biggest fan and, as a result, Bezos is a regular target of Donald Trump’s Twitter rants.
“There’s potential for volatility in Amazon’s share price in the run up to the US election, as the debate over breaking up large tech firms will be discussed by all presidential candidates,’ said Axa Investment Management’s Jeremy Gleeson.
A federal probe into Amazon's market dominance is underway, with the Federal Trade Commission (FTC) interviewing small businesses that sell products on Amazon, who are often at the mercy of the online behemoth.
The head of the FTC, Joe Simon, said he is prepared to break up major technology platforms, such as Amazon, to restore competition.
However, Amazon expert and journalist Franklin Foer thinks Bezos will break up his company before the FTC gets their hands on it.
“I think that eventually Bezos, who is seeing around corners, is going to break up his own company,” Foer said. “AWS exists as its own fantastically profitable business. There’s no reason that it needs to be connected to Amazon the e-retailer. And as he looks at what’s happening in politics, where there’s this increasing bipartisan consensus that big tech is a problem, I’m pretty sure he’s going to say, ‘OK fine.’”
The ongoing trade war between the US and China is another threat to Amazon’s growth rate. A report by the Bank of America (BofA) estimates Amazon will need to raise US prices by around 2.1-2.6 per cent, to offset the impact of the tariffs imposed by Trump.
If the trade war isn’t resolved soon, and the tariff is increased, BofA estimates a hike in prices of up 4.4 per cent – which consumers may not be prepared to pay for. On the flip side, if phase one is signed off the BofA expects Amazon's stock to rise.
Away from retail, Prime Video, which made £400m in 2018, faces challenges from the likes of Netflix and Roku, along with new kids on the block, Apple TV Plus and Disney Plus. It will be interesting to see how the streaming wars affect Amazon’s future price.
International expansion might be curtailed by a new digital tax from the EU, named GAFA, after the digital giants it will target: Google, Amazon, Facebook and Apple. The French were the first to introduce the tax and the EU has been looking at rolling it out across the entire eurozone.
The tax would be implemented by newly appointed commissioner for economic and financial affairs, Paolo Gentiloni. However, the former Italian president owns shares in Amazon, worth in excess of $110,000. Whether he has any sway in the matter remains to be seen.
Even if the EU tax doesn't come into play, Amazon could see a hike in taxes in the UK, if Labour comes to power. Amid continued accusations that the company isn’t paying enough corporation tax, Jeremy Corbyn staged a protest outside an Amazon depot, promising to clamp down on a “tax and wage cheat culture” in multinational companies.
Should you invest?
As Amazon continues to invest in cloud computing, retail, video content and online video services, and moves into new markets, such as health and transportation, its revenue looks solid for the foreseeable future.
Despite potential disruptions, and increased costs, with over 40 subsidiaries Amazon is big enough, and bad enough, to ride most storms. As a result, Amazon share price forecast remains bullish, but with share prices already high, this is a long-term game.
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