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2021-06-22
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Where Will Amazon Stock Be In 10 Years? Probably Lower Than You Think
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{"i18n":{"language":"zh_CN"},"detailType":1,"isChannel":false,"data":{"magic":2,"id":129043133,"tweetId":"129043133","gmtCreate":1624347521322,"gmtModify":1631890529122,"author":{"id":3575631498620816,"idStr":"3575631498620816","authorId":3575631498620816,"authorIdStr":"3575631498620816","name":"ShunZhou","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":1,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":1,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body><p>Latwst</p></body></html>","htmlText":"<html><head></head><body><p>Latwst</p></body></html>","text":"Latwst","highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/129043133","repostId":1100733883,"repostType":4,"repost":{"id":"1100733883","kind":"news","pubTimestamp":1624347185,"share":"https://www.laohu8.com/m/news/1100733883?lang=&edition=full","pubTime":"2021-06-22 15:33","market":"us","language":"en","title":"Where Will Amazon Stock Be In 10 Years? Probably Lower Than You Think","url":"https://stock-news.laohu8.com/highlight/detail?id=1100733883","media":"seekingalpha","summary":"Summary\n\nDigging into AMZN, I found that after nearly doubling in price since the start of the pande","content":"<p><b>Summary</b></p>\n<ul>\n <li>Digging into AMZN, I found that after nearly doubling in price since the start of the pandemic, there isn't a whole lot of upside at today's prices.</li>\n <li>This is consistent with other work-from-home stocks I've analyzed.</li>\n <li>I'm projecting low-to-mid single-digit returns over the next decade for Amazon stock based on my own earnings modeling.</li>\n <li>There are important risks to Amazon from the competition, antitrust, and its high valuation.</li>\n</ul>\n<p><b>Is It Too Late to Buy Amazon?</b></p>\n<p>My recent series on<i>Seeking Alpha</i>has coveredpopular tech stocksand asked where they would trade in 5 years based on their valuations and earnings growth prospects. The series has been a hit. The general consensus is that while I expect large-cap tech to continue to have success in growing earnings, tech valuations are clearly outrunning earnings growth, meaning that the 20+ percent returns that investors are accustomed to in tech are unsustainable. Most large-cap stocks I've analyzed are offering 5 to 8 percent annual returns at current prices due to the remarkable surge in valuations since the start of the pandemic. Next up is the quintessential 21st-century growth stock, Amazon (AMZN).</p>\n<p>For this article, we're going to take it a step further and ask where Amazon stock will be in 10 years, in a nod to the company's remarkable growth. Since the start of the 21st century, Amazon has moved a substantial portion of commerce in the Western world from brick-and-mortar retailers to the internet, and built a massive cloud computing business from scratch. After splitting its stock several times in the late 1990s, Amazon went from about $80 per share in 2000 down to a low of less than $6 in the dot-com bust, to today's price of nearly $3500 per share. To understand where Amazon is going, first, you have to understand how it got to where it is.</p>\n<p><img src=\"https://static.tigerbbs.com/e7a341c7377e4554805faee634850885\" tg-width=\"635\" tg-height=\"435\" referrerpolicy=\"no-referrer\">Data by YCharts</p>\n<p>I would argue that there have been 3 phases in Amazon's history.</p>\n<ul>\n <li>The first phase was the dot-com boom and bust. At the time, Amazon was a small company that mostly sold books, music, and videos online. Wall Street got behind the stock, and money started pouring in. Media entrepreneur Henry Blodget, then an analyst for Oppenheimer,famously put a price target that was nearly double what the stock was trading for, only to see the stock surge through his price target in weeks. 2000 rolled around, the Fed pulled the punch bowl, and Amazon stock soon fell over 90 percent. In the first phase, investors clearly got overexcited about the prospects of Amazon and many other internet stocks. Amazon wouldn't take out the old high for nearly a decade, while many other dot-com companies simply disappeared.</li>\n <li>The second phase started in 2006 with the introduction of cloud computing. AWS had existed in limited formsince the early 2000s, but the launch of the cloud storage business by Andy Jassy, then a young executive at Amazon, would become a slow-motion home run as data needs for businesses grew exponentially over the next 15 years. By 2012, AWS revenue was over $1.5 billion. In a watershed moment that year, Netflix (NFLX) CEO Reed Hastings announced plans to move 100 percent of Netflix's infrastructure to AWS. By 2015, revenue hit $5 billion, by 2017, it was nearly $18 billion, and last year's revenue was nearly $50 billion and operating profit from AWS accounted fornearly two-thirds of Amazon's total operating profit. AWS drove Amazon's stock price and will continue to be the key driver in the future. As goes AWS, so goes Amazon.</li>\n <li>The third phase of Amazon's history is the coronavirus pandemic, which has seen a surge in AMZN's share price. With retailers shut down all over the world, Amazon became a lifeline to consumers battling shortages of goods and stay-at-home restrictions, and during the pandemic, Amazon asserted its position as the world's largest retailer. AWS's profits soared during the pandemic over big prior year comparables as companies increasingly turned to the internet to replace the work they used to do at offices. Since the start of the pandemic, Amazon's stock has nearly doubled.</li>\n</ul>\n<p>The question of whether it's too late to buy Amazon can only be answered by evaluating the company's valuation and growth prospects. Amazon is a hard stock to value because it operated at breakeven for many years in its growth phase, but as the company has matured I'm better able to make educated guesses at long-range forecasts for Amazon's prospects. And for Amazon shareholders, the main question now is whether the company can continue to grow earnings at rates close to what it has in the past.</p>\n<p><b>Does Amazon Stock Still Have Room to Grow?</b></p>\n<p>Amazon's share price has risen sharply during the pandemic. There are two schools of thought here.</p>\n<ol>\n <li>The first school of thought is that the pandemic has fundamentally reordered the world, giving an advantage to Amazon that it can continue to press. Under this view, Amazon stock is undervalued.</li>\n <li>The second school of thought is that the coronavirus pandemic priced in future growth for Amazon and other big companies and that this growth will slow. If this is the case and growth slows sufficiently, the previous advances in Amazon's share price are overdone and future returns will be low.</li>\n</ol>\n<p>Amazon trades for63x 2021 earnings and 48x consensus 2022 earnings.This makes the stock very risky if growth comes in below expectations in the future. As you go further out in the future, fewer analysts are willing to publish revenue and profit estimates, but we can get at least 5 sell-side analysts out to 2026, and the numbers until then are impressive. The analyst consensus is for earnings to grow byaround 30 percent annually for the next 5 years!I'm not so sure that growth can be achieved on this scale going forward, although no one knows for sure. The thinking here is that AWS will drive earnings growth, which is very likely to be true. How fast the earnings grow is what will make or break Amazon over the next 5-10 years.</p>\n<p>Interestingly, revenue growth is expected to be slower than earnings growth, averaging in the mid-teens. This is a contradiction that is apparently explained by the fact that analysts expect Amazon's profit margins to sequentially improve, which is not a given when your competitors include Google(NASDAQ:GOOG)(GOOGL) and Microsoft (MSFT).</p>\n<p>With this in mind, this is how fast AWS revenue has grown over the last decade.</p>\n<p><b>Yearly revenue growth rate, AWS</b></p>\n<p><img src=\"https://static.tigerbbs.com/454a1a6260ac83154c489246ddf9100b\" tg-width=\"640\" tg-height=\"429\"></p>\n<p><i>Source:Statista</i></p>\n<p>As you can see here, AWS revenue growth has slowed over time, but recently ticked up. In addition to revenue, Amazon reports operating profit for AWS but not figures for net income. However, as a whole, Amazon doesn't convert all of its operating income into net income, with the difference going to expenses like depreciation, amortization, and the ~$10 billion in stock options Amazon paid out last year to retain talent. Still, AWS is close to or above thewell-known rule of 40, and every year it stays at or above the rule of 40 Amazon's fundamental value increases. When growth eventually does slow for AWS, Amazon shareholders will be forced to reevaluate how much the stock is worth.</p>\n<p><b>Where Will Amazon Stock Be in 10 Years?</b></p>\n<p>We already know that AWS represents about 2/3rds of Amazon's profit (Amazon is expected to earn $55 EPS in 2021, so I'll assign $36 of that to AWS and $19 to everything else. Amazon doesn't disclose this in their financials so I'm making an educated guess). Let's do some handicapping. Let's say AWS income grows by 25 percent for the next 5 years (i.e. triples in 5 years) and grows 5 percent after, at which point the business is mature. For the rest of Amazon's business, we'll assume it grows at 10 percent for 5 years and 5 percent after.</p>\n<p>Under my forecast, AWS income would grow from $36/share to $110/share in 5 years, while other income would grow to $31/share. In sum, I calculate that Amazon would earn $141/share in 2026, which puts my best-guess estimate above the lowest sell-side earnings estimate but below the median estimate (I previously had estimatedEPS of $150 by 2025 the last time I covered Amazon, this update reflects my new modeling - I'm less sunny on AMZN's prospects the more I dig into its financials).</p>\n<p>In 2031, assuming 5 percent growth from maturity in 2026, my ballpark estimate for Amazon's earnings is $180 per share. As Amazon's growth slows to earth, I would expect the multiple to shrink a bit, to 28x by 2026, and to 25x by 2031. This gets me a new price target for Amazon of roughly $4000 by 2026 and $4500 by 2031. If you think the multiples will be higher on AMZN stock then add a few hundred dollars to both estimates.</p>\n<p>This is indicative of low-to-mid single-digit expected annual returns for Amazon stock. I do indeed think that the law of large numbers will eventually apply to Amazon and that their revenue growth won't continue like this forever. After all, we just came out of a pandemic, which was one of the best possible macro events that could happen to Amazon. Extrapolating future growth for work-from-home stocks when their products were influenced by pandemic demand and government restrictions is not going to match future reality in many cases.</p>\n<p>When you model Amazon's earnings, the future price estimates are very sensitive to the growth rate, which cuts both ways. If Amazon grows earnings faster for several years, the stock will appreciate correspondingly, maybe to $5000 or higher, but if growth slows, the 48x multiple will slowly bleed away, as has happened to thousands of tech companies in the past, and as happened to Amazon itself from 2000 to 2008. Obviously, the stock returns are very sensitive to the growth rate, if Amazon grows earnings to $300 per share like the high analyst estimate suggests by 2026 and then grows from there, then AMZN is easily a $7000+ stock. However, in my view, this would require implausibly high growth rates.</p>\n<p>I believe that when analysts hang these very high earnings numbers far out in the future that they're biased by what has happened in the past. Analysts underestimated AWS before, but now everyone is talking about AWS, which makes me think that they might be too excited about WFH plays just the same way people were overexcited about sections of tech in 2000. I would not, under any circumstances expect that companies that grew 30+ percent during COVID should continue to do so in the future unless proven otherwise.</p>\n<p>Amazon's valuation is high in part because it's one of the biggest holdings of the NASDAQ, which gets index money irrespective of whether the companies can continue to grow. Based on fundamentals, I expect several of the top NASDAQ holdings to see negative returns going forward, while others are likely to see low but positive returns. That is how tech investing works, by the way, your winners cover your losers. In Amazon's case, I see a lot of plausible ways it can go down and fewer ways it can go up. This is almost entirely due to the price change between the start of the pandemic and now.</p>\n<p><b>Risks to Amazon Stock</b></p>\n<ol>\n <li>Amazon is somewhat unusual forcapping salaries at $160kand paying the rest in restricted stock, which made some of its employees very rich, but partially at the expense of others who quit or were fired before their stock vests. The salary figures are significantly lower than other tech companies, while the stock component is higher. The turnover at Amazon appears to be dramatically higher than competitors like Google, which is known for having a gentler culture than Amazon. The business risk here is that since so much compensation is in stock and Amazon's corporate culture is so cutthroat, a falling share price could create a vicious cycle where talent leaves, leading to worse business performance, which then reinforces the cycle. The rising stock price led many employees and executives to tolerate the brutal culture at Amazon in the past, but if the stock does not continue to rise then Amazon could quickly have problems attracting and retaining talent. I've seen this happen before to companies in tech and finance, and it's not pretty when the negative feedback loop gets rolling. It's not something that is guaranteed to happen, but it is a risk I would consider.</li>\n <li>Antitrust could very possibly be an issue for Amazon. Amazon is facing anantitrust lawsuit in DCover the so-called most favored nation clause in its contract with third-party sellers. The Democratic House of Representatives antitrust subcommittee has Amazon inits crosshairs as well. Amazon is likely to argue that their business dominance is because they've reduced prices for consumers, but the real antitrust threat, in the long run, is that AWS will be broken up. When Amazon decided to block Parler from using AWS hosting, it made a decision that is likely to cause Republicans to take legal action against them in the future if they regain control of the White House. This is within the 10-year period that this article covers, and memories can be quite long in politics. Even without the Parler issue, Amazon's leadership is excessively involved in politics compared to competitors, which creates downside risk for shareholders. Politicians don't have to cause Amazon losses to cause pain for shareholders, because the valuation is so high, all they have to do is slow down the growth rate. The Federal government did not succeed inits bid to break up Microsoft in 2001, but Microsoft's share performance during the early 2000s was dismal.</li>\n <li>Competition is another risk that comes to mind. Amazon currently has a dominant market position, but as you read this, people at Microsoft and Google are looking for ways to cut into Amazon's market share. Amazon is \"king of the hill,\" but in tech, there are plenty of companies that had high valuations in 2000 and aren't kings anymore. This is Amazon's first time on top of the NASDAQ, and while Amazon's foresight got them to the top, I question whether they will necessarily be able to stay there. There are different skill sets required to get to the top and stay there, and the level of turnover at Amazon may make the next phase of their growth more challenging than it would be otherwise.</li>\n</ol>\n<p><b>Conclusion</b></p>\n<p>High-growth stocks like Amazon are notoriously hard to value. Analysts continually underestimated AWS, which drove Amazon stock to where it is today. Now, based on revenue growth trends and back-of-the-envelope calculations it looks to me like they're overestimating it, given increased competition and industry maturity. This is classic Wall Street, for analysts to initially underestimate a trend and then hop on the train only to overestimate it.</p>\n<p>There's an old joke that if you add up all of the management market share projections in any industry they'll add up to well over 100 percent, and I think the same is true for cloud computing stocks at the moment. While I expect Amazon will grow into its valuation and at least have some positive return for shareholders, I don't expect much upside from the stock, and there are risks to the downside related to competition, antitrust, and valuation.</p>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Where Will Amazon Stock Be In 10 Years? Probably Lower Than You Think</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nWhere Will Amazon Stock Be In 10 Years? Probably Lower Than You Think\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-22 15:33 GMT+8 <a href=https://seekingalpha.com/article/4435898-amazon-stock-10-years><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nDigging into AMZN, I found that after nearly doubling in price since the start of the pandemic, there isn't a whole lot of upside at today's prices.\nThis is consistent with other work-from-...</p>\n\n<a href=\"https://seekingalpha.com/article/4435898-amazon-stock-10-years\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"AMZN":"亚马逊"},"source_url":"https://seekingalpha.com/article/4435898-amazon-stock-10-years","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1100733883","content_text":"Summary\n\nDigging into AMZN, I found that after nearly doubling in price since the start of the pandemic, there isn't a whole lot of upside at today's prices.\nThis is consistent with other work-from-home stocks I've analyzed.\nI'm projecting low-to-mid single-digit returns over the next decade for Amazon stock based on my own earnings modeling.\nThere are important risks to Amazon from the competition, antitrust, and its high valuation.\n\nIs It Too Late to Buy Amazon?\nMy recent series onSeeking Alphahas coveredpopular tech stocksand asked where they would trade in 5 years based on their valuations and earnings growth prospects. The series has been a hit. The general consensus is that while I expect large-cap tech to continue to have success in growing earnings, tech valuations are clearly outrunning earnings growth, meaning that the 20+ percent returns that investors are accustomed to in tech are unsustainable. Most large-cap stocks I've analyzed are offering 5 to 8 percent annual returns at current prices due to the remarkable surge in valuations since the start of the pandemic. Next up is the quintessential 21st-century growth stock, Amazon (AMZN).\nFor this article, we're going to take it a step further and ask where Amazon stock will be in 10 years, in a nod to the company's remarkable growth. Since the start of the 21st century, Amazon has moved a substantial portion of commerce in the Western world from brick-and-mortar retailers to the internet, and built a massive cloud computing business from scratch. After splitting its stock several times in the late 1990s, Amazon went from about $80 per share in 2000 down to a low of less than $6 in the dot-com bust, to today's price of nearly $3500 per share. To understand where Amazon is going, first, you have to understand how it got to where it is.\nData by YCharts\nI would argue that there have been 3 phases in Amazon's history.\n\nThe first phase was the dot-com boom and bust. At the time, Amazon was a small company that mostly sold books, music, and videos online. Wall Street got behind the stock, and money started pouring in. Media entrepreneur Henry Blodget, then an analyst for Oppenheimer,famously put a price target that was nearly double what the stock was trading for, only to see the stock surge through his price target in weeks. 2000 rolled around, the Fed pulled the punch bowl, and Amazon stock soon fell over 90 percent. In the first phase, investors clearly got overexcited about the prospects of Amazon and many other internet stocks. Amazon wouldn't take out the old high for nearly a decade, while many other dot-com companies simply disappeared.\nThe second phase started in 2006 with the introduction of cloud computing. AWS had existed in limited formsince the early 2000s, but the launch of the cloud storage business by Andy Jassy, then a young executive at Amazon, would become a slow-motion home run as data needs for businesses grew exponentially over the next 15 years. By 2012, AWS revenue was over $1.5 billion. In a watershed moment that year, Netflix (NFLX) CEO Reed Hastings announced plans to move 100 percent of Netflix's infrastructure to AWS. By 2015, revenue hit $5 billion, by 2017, it was nearly $18 billion, and last year's revenue was nearly $50 billion and operating profit from AWS accounted fornearly two-thirds of Amazon's total operating profit. AWS drove Amazon's stock price and will continue to be the key driver in the future. As goes AWS, so goes Amazon.\nThe third phase of Amazon's history is the coronavirus pandemic, which has seen a surge in AMZN's share price. With retailers shut down all over the world, Amazon became a lifeline to consumers battling shortages of goods and stay-at-home restrictions, and during the pandemic, Amazon asserted its position as the world's largest retailer. AWS's profits soared during the pandemic over big prior year comparables as companies increasingly turned to the internet to replace the work they used to do at offices. Since the start of the pandemic, Amazon's stock has nearly doubled.\n\nThe question of whether it's too late to buy Amazon can only be answered by evaluating the company's valuation and growth prospects. Amazon is a hard stock to value because it operated at breakeven for many years in its growth phase, but as the company has matured I'm better able to make educated guesses at long-range forecasts for Amazon's prospects. And for Amazon shareholders, the main question now is whether the company can continue to grow earnings at rates close to what it has in the past.\nDoes Amazon Stock Still Have Room to Grow?\nAmazon's share price has risen sharply during the pandemic. There are two schools of thought here.\n\nThe first school of thought is that the pandemic has fundamentally reordered the world, giving an advantage to Amazon that it can continue to press. Under this view, Amazon stock is undervalued.\nThe second school of thought is that the coronavirus pandemic priced in future growth for Amazon and other big companies and that this growth will slow. If this is the case and growth slows sufficiently, the previous advances in Amazon's share price are overdone and future returns will be low.\n\nAmazon trades for63x 2021 earnings and 48x consensus 2022 earnings.This makes the stock very risky if growth comes in below expectations in the future. As you go further out in the future, fewer analysts are willing to publish revenue and profit estimates, but we can get at least 5 sell-side analysts out to 2026, and the numbers until then are impressive. The analyst consensus is for earnings to grow byaround 30 percent annually for the next 5 years!I'm not so sure that growth can be achieved on this scale going forward, although no one knows for sure. The thinking here is that AWS will drive earnings growth, which is very likely to be true. How fast the earnings grow is what will make or break Amazon over the next 5-10 years.\nInterestingly, revenue growth is expected to be slower than earnings growth, averaging in the mid-teens. This is a contradiction that is apparently explained by the fact that analysts expect Amazon's profit margins to sequentially improve, which is not a given when your competitors include Google(NASDAQ:GOOG)(GOOGL) and Microsoft (MSFT).\nWith this in mind, this is how fast AWS revenue has grown over the last decade.\nYearly revenue growth rate, AWS\n\nSource:Statista\nAs you can see here, AWS revenue growth has slowed over time, but recently ticked up. In addition to revenue, Amazon reports operating profit for AWS but not figures for net income. However, as a whole, Amazon doesn't convert all of its operating income into net income, with the difference going to expenses like depreciation, amortization, and the ~$10 billion in stock options Amazon paid out last year to retain talent. Still, AWS is close to or above thewell-known rule of 40, and every year it stays at or above the rule of 40 Amazon's fundamental value increases. When growth eventually does slow for AWS, Amazon shareholders will be forced to reevaluate how much the stock is worth.\nWhere Will Amazon Stock Be in 10 Years?\nWe already know that AWS represents about 2/3rds of Amazon's profit (Amazon is expected to earn $55 EPS in 2021, so I'll assign $36 of that to AWS and $19 to everything else. Amazon doesn't disclose this in their financials so I'm making an educated guess). Let's do some handicapping. Let's say AWS income grows by 25 percent for the next 5 years (i.e. triples in 5 years) and grows 5 percent after, at which point the business is mature. For the rest of Amazon's business, we'll assume it grows at 10 percent for 5 years and 5 percent after.\nUnder my forecast, AWS income would grow from $36/share to $110/share in 5 years, while other income would grow to $31/share. In sum, I calculate that Amazon would earn $141/share in 2026, which puts my best-guess estimate above the lowest sell-side earnings estimate but below the median estimate (I previously had estimatedEPS of $150 by 2025 the last time I covered Amazon, this update reflects my new modeling - I'm less sunny on AMZN's prospects the more I dig into its financials).\nIn 2031, assuming 5 percent growth from maturity in 2026, my ballpark estimate for Amazon's earnings is $180 per share. As Amazon's growth slows to earth, I would expect the multiple to shrink a bit, to 28x by 2026, and to 25x by 2031. This gets me a new price target for Amazon of roughly $4000 by 2026 and $4500 by 2031. If you think the multiples will be higher on AMZN stock then add a few hundred dollars to both estimates.\nThis is indicative of low-to-mid single-digit expected annual returns for Amazon stock. I do indeed think that the law of large numbers will eventually apply to Amazon and that their revenue growth won't continue like this forever. After all, we just came out of a pandemic, which was one of the best possible macro events that could happen to Amazon. Extrapolating future growth for work-from-home stocks when their products were influenced by pandemic demand and government restrictions is not going to match future reality in many cases.\nWhen you model Amazon's earnings, the future price estimates are very sensitive to the growth rate, which cuts both ways. If Amazon grows earnings faster for several years, the stock will appreciate correspondingly, maybe to $5000 or higher, but if growth slows, the 48x multiple will slowly bleed away, as has happened to thousands of tech companies in the past, and as happened to Amazon itself from 2000 to 2008. Obviously, the stock returns are very sensitive to the growth rate, if Amazon grows earnings to $300 per share like the high analyst estimate suggests by 2026 and then grows from there, then AMZN is easily a $7000+ stock. However, in my view, this would require implausibly high growth rates.\nI believe that when analysts hang these very high earnings numbers far out in the future that they're biased by what has happened in the past. Analysts underestimated AWS before, but now everyone is talking about AWS, which makes me think that they might be too excited about WFH plays just the same way people were overexcited about sections of tech in 2000. I would not, under any circumstances expect that companies that grew 30+ percent during COVID should continue to do so in the future unless proven otherwise.\nAmazon's valuation is high in part because it's one of the biggest holdings of the NASDAQ, which gets index money irrespective of whether the companies can continue to grow. Based on fundamentals, I expect several of the top NASDAQ holdings to see negative returns going forward, while others are likely to see low but positive returns. That is how tech investing works, by the way, your winners cover your losers. In Amazon's case, I see a lot of plausible ways it can go down and fewer ways it can go up. This is almost entirely due to the price change between the start of the pandemic and now.\nRisks to Amazon Stock\n\nAmazon is somewhat unusual forcapping salaries at $160kand paying the rest in restricted stock, which made some of its employees very rich, but partially at the expense of others who quit or were fired before their stock vests. The salary figures are significantly lower than other tech companies, while the stock component is higher. The turnover at Amazon appears to be dramatically higher than competitors like Google, which is known for having a gentler culture than Amazon. The business risk here is that since so much compensation is in stock and Amazon's corporate culture is so cutthroat, a falling share price could create a vicious cycle where talent leaves, leading to worse business performance, which then reinforces the cycle. The rising stock price led many employees and executives to tolerate the brutal culture at Amazon in the past, but if the stock does not continue to rise then Amazon could quickly have problems attracting and retaining talent. I've seen this happen before to companies in tech and finance, and it's not pretty when the negative feedback loop gets rolling. It's not something that is guaranteed to happen, but it is a risk I would consider.\nAntitrust could very possibly be an issue for Amazon. Amazon is facing anantitrust lawsuit in DCover the so-called most favored nation clause in its contract with third-party sellers. The Democratic House of Representatives antitrust subcommittee has Amazon inits crosshairs as well. Amazon is likely to argue that their business dominance is because they've reduced prices for consumers, but the real antitrust threat, in the long run, is that AWS will be broken up. When Amazon decided to block Parler from using AWS hosting, it made a decision that is likely to cause Republicans to take legal action against them in the future if they regain control of the White House. This is within the 10-year period that this article covers, and memories can be quite long in politics. Even without the Parler issue, Amazon's leadership is excessively involved in politics compared to competitors, which creates downside risk for shareholders. Politicians don't have to cause Amazon losses to cause pain for shareholders, because the valuation is so high, all they have to do is slow down the growth rate. The Federal government did not succeed inits bid to break up Microsoft in 2001, but Microsoft's share performance during the early 2000s was dismal.\nCompetition is another risk that comes to mind. Amazon currently has a dominant market position, but as you read this, people at Microsoft and Google are looking for ways to cut into Amazon's market share. Amazon is \"king of the hill,\" but in tech, there are plenty of companies that had high valuations in 2000 and aren't kings anymore. This is Amazon's first time on top of the NASDAQ, and while Amazon's foresight got them to the top, I question whether they will necessarily be able to stay there. There are different skill sets required to get to the top and stay there, and the level of turnover at Amazon may make the next phase of their growth more challenging than it would be otherwise.\n\nConclusion\nHigh-growth stocks like Amazon are notoriously hard to value. Analysts continually underestimated AWS, which drove Amazon stock to where it is today. Now, based on revenue growth trends and back-of-the-envelope calculations it looks to me like they're overestimating it, given increased competition and industry maturity. This is classic Wall Street, for analysts to initially underestimate a trend and then hop on the train only to overestimate it.\nThere's an old joke that if you add up all of the management market share projections in any industry they'll add up to well over 100 percent, and I think the same is true for cloud computing stocks at the moment. While I expect Amazon will grow into its valuation and at least have some positive return for shareholders, I don't expect much upside from the stock, and there are risks to the downside related to competition, antitrust, and valuation.","news_type":1},"isVote":1,"tweetType":1,"viewCount":88,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":6,"xxTargetLangEnum":"ORIG"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/129043133"}
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