Technology

How Amazon Shares Can Still Triple in Value, Out to 2025

Jon C. Ogg

Published: September 7, 2017 10:50 am

Last Updated: January 12, 2020 8:25 am

With talk of looking for a new separate headquarters elsewhere in the United States, Amazon.com Inc. (NASDAQ: AMZN) has some other news investors might want to consider. Boutique firm MKM Partners has projected that shares of Amazon will more than triple by the middle of the next decade.

MKM Partners is a firm that has about 11 offices around the United States, and its Rob Sanderson has a four-star (out of five) Starmine rating. Sanderson reiterated his Buy rating on Amazon, and it was just back on August 8 that Sanderson raised his official Amazon price target of $1,095 to $1,275. That $1,275 price target remained the same for the September update.

According to Sanderson’s long-term call, he believes that Team Bezos will continue to dominate over the next decade in e-commerce and in cloud computing.

With a current market capitalization of about $465 billion, the stock is already up close to 30% so far in 2017. If MKM’s call is right then Amazon could be worth more than $1 trillion in market capitalization down the road. Sanderson even laid out a case where Amazon’s value could exceed $1.6 trillion over the next seven or eight years.

One key driver is that Amazon’s percentage of all retail spending has reached 5.1% as of 2016. MKM Partners is calling for that to reach a total share of 15.5% by 2025 and even eclipse Wal-Mart over time.

On the Amazon Web Services (AWS) business, MKM’s longer-term call is that AWS can grow its cloud revenues 20% per year for another eight years. The view is that the cloud is the largest redefinition of computing since the PC-era.

Sanderson also gave longer-term views back in August. He then noted how Amazon’s stock has never been valued on near-term profits, and he noted that it likely won’t be judged on that classic metric until investors can see a limit on the company’s growth opportunities. Until that time, he thinks he thinks revenue growth and market share gains will matter more to shareholders than actual profitability.

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Also back on August 8, Sanderson gave a longer-term target price of $2,010 in 3.5 years. His report at that time talked about how Amazon shares could go over $2,000. He said:

We do not expect Amazon will generate meaningful profits anytime soon. The company should be managed for profits until growth opportunities become more limited or more risky, in our view… We apply a 30x P/E to commerce and 35x to AWS earnings to our estimates for 2022, which we think the stock will trade at by 2021. This implies a $2,010 stock in 3.5 years. We apply a discount rate of 20% per year to get to out $1,275 target by mid-2018.

Needless to say, a tripling of its shares at this point would be far higher than that $2,010 target.

Amazon shares were last seen trading up about 1% at $978.10 on Thursday morning. The shares have a 52-week range of $710.10 to $1,083.31, and they had a consensus analyst price target of $1,141.73 on last look.