Up 181,000%, can this hypergrowth stock be 50 times higher than your portfolio?
It’s been a dozen years since the end of the Great Recession in 2008 and 2009, and one class of stocks on Wall Street has led an inexorable rise: growth stocks.
The Federal Reserve’s policies on quantitative easing and keeping lending rates artificially low, coupled with massive government spending programs, created an easy money environment that helped fuel business growth at the pace. fast. These conditions show little sign of changing anytime soon and in many ways could accelerate, making growth stocks a good bet to continue to outperform the S&P 500 over the next decade.
As the general market index hits all-time highs day after day, one stock, in particular, seems capable of outperforming others and could help push your portfolio up to 50 times higher.
Since its IPO on May 15, 1997, at $ 18 per share, or an adjusted price of $ 1.50 per share, Amazon (NASDAQ: AMZN) has been an e-commerce juggernaut, with a return of over 181,700%. It is now one of the most essential and valuable companies in existence, with a market capitalization of over $ 1.8 trillion.
Over the course of more than two decades, Amazon has grown beyond its humble origins as an online bookseller to become the Internet backbone of many companies and businesses.
Yet, after making such remarkable gains, it is worth considering whether he can continue to walk towards the sky. A 50x gain would put its value at some $ 85 trillion. Possible? Absoutely!
One website to rule them all
As noted, Amazon is the number one ecommerce company, with a recent report from eMarketer suggesting the retail giant could account for 41.4% of all online retail spending in the United States in 2021. This is almost six times more than Walmart, the company with the second largest market share with only 7.2% and 10 times higher than third place eBay.
Or, in other words, Amazon’s share of US retail e-commerce sales would still be over 50% higher than the share of the following nine companies combined.
The key to Amazon’s business success is its Prime subscriber service. It has some 200 million members and helps the retailer lower the prices of its traditional rival and increase its very slim retail margins. Free delivery through the service is just the gateway to the many other services it offers while generating tens of billions of dollars in higher margin fee revenue.
This prompts members to buy from the website to get the most out of their annual membership fee and members have been shown to spend more than non-Prime customers.
Dominate the cloud
The real growth opportunity to increase Amazon’s value 50-fold in the coming years is arguably its cloud-based Amazon Web Services (AWS) offering. Already the clear leader in cloud infrastructure market share, it is poised to generate over $ 60 billion in annual revenue based on its performance to date in 2021.
AWS has long done the heavy lifting in terms of profitability for Amazon, and although its US retail operations have been profitable for a few years now, the cloud services business remains its most profitable segment. In the first nine months of this year, it made more than $ 13.2 billion in operating revenue, or about 62% of the total.
AWS is designed to be Amazon’s primary operating cash flow generator, as it creates margins that are significantly higher than retail or advertising, even though the revenue it generates is only 13 % of total.
According to Canalys estimates, AWS accounts for 32% of global cloud infrastructure spending.
A huge opportunity for growth
For a 50x return to occur, Amazon’s valuation would have to rise from around $ 1.7 trillion to $ 85 trillion. While it might seem absurd at first glance (remember when Dow 20,000 seemed overkill?), It could happen in as little as 25 years at a compound annual growth rate of 16%.
While it may also seem far-fetched, between Amazon’s initial public offering and today, its stock has grown at a compound rate of 38%. So cutting that rate of expansion by more than half still means it’s possible, and with its dominant presence in the areas most critical to its success, Amazon.com seems to have a good chance of doing just that.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.