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With Nvidia’s stellar rise, the question remains whether Amazon can chart a similar trajectory and enter the $3 trillion club??
Amazon Q1 Earnings
Tech giant Amazon released its quarterly results in May, beating analysts’ expectations.
The company’s Q1 sales increased by 13% to $143.3 billion, higher than the $142.5 billion expectation. Net income also increased thrice to $10.4 billion in Q1. For the quarter ending in June, Amazon is expecting a bottom line between $144 and $149, as analysts expect an earning of $150 billion.
The outstanding results were mostly driven by the cloud computing division.
Strong sales at Amazon’s cloud computing division helped the Big Tech giant beat analyst estimates for revenue and profit.#Amazon pic.twitter.com/wTiphNntRf
— Cliff Roiginson???? (@C_Roiginson) May 1, 2024
Amazon’s Growth Points
Analysts believe that with sustained profitability and increased revenues, the company has the potential to become the next member of the $3 trillion club. Here’s how the company can reach this mark.
One way to achieve this is by expanding Amazon to countries with no presence or low penetration.
AWS, Orange to offer cloud computing in Morocco, Senegal
Amazon Web Services (AWS) plans to offer cloud computing in Morocco and Senegal using its AWS Wavelength platform in partnership with Orange, the firms said on Wednesday.
This will be the first time the services will be… pic.twitter.com/jOV5TeP00m
— EchoeWeb (@Echoeweb) May 30, 2024
The company already has a considerable market share (around 40% for e-commerce), which may further challenge its growth.
However, Amazon can tap into other revenue sources such as advertisement, subscriptions, and AI. Its Amazon Q, launched by Amazon Web Services (AWS), aims to redefine enterprise AI and enhance workers’ productivity by solving daily tasks.
Another avenue for growth is Amazon’s international business, which is operating in deficit. Operational losses total $2.6 billion despite registering a revenue of $131 in 2023.
How Can Amazon Reach $3 Trillion Club?
According to various estimates, Amazon’s growth can increase 10% until 2028 with a 21.2% uptick in EBITDA margin. Under this scenario, the company will have a $205 billion EBITDA at the end of 2028.
The current enterprise value (EV) – that tells the company’s total value – to EBITDA ratio of Amazon is 19X; if it reaches 15X, then the EV will hit $3 trillion.
Amazon’s current valuation is $1.95 trillion, with around 10.4 billion shares outstanding. It is expected to earn $4.57/share in 2024 and $5.84/share, registering a growth of 28%.
Analysts at Bank of America (BofA) have labeled Amazon as its top pick in their large-cap in the internet sector. Retail margins are expanding. One of the most important factors in the increase of valuation, i.e., free cash flow, is also expected to improve with the team at BofA rating the stock a buy even at $210.
Building on the above-mentioned, another company, Canalys, estimates that AWS will capture?31% of the market share at the end of September 2023.
According to calculations by Coincodex, Amazon’s share price can reach $1052 by 2040, increasing 501%.
AWS and Cloud Computing Perspectives
It is also important to look at the growth estimates regarding Cloud Computing itself, as this seems to be the area upon which AWS can depend for its pathway to becoming a $3 trillion company.
Fortune Business Insights projects a growth of about 20% and $2.4 trillion in sales by the decade’s end. Due to this, Amazon’s cash flow is expected to increase fourfold between 2022 and 2027—around $17/share. Based on this calculation, its share has the potential to be roughly nine times the consensus cash flow by 2027.
Marc Ostwald, Chief Economist at ADM ISI, seems to agree with the potential of AWS and Cloud Computing. He told Techopedia:
“Everything is possible, especially in momentum-driven markets, but the current market cap, as far as I can see, is $1.95 trillion, so let’s cross the $2.0 trillion marker first. It will require something AI-related that is most likely to come from AWS than the marketplace.”
