The e-commerce giant Amazon has been on a remarkable journey, with its stock surging 12% over the past three years, recently breaking its all-time high set in 2021. However, what’s surprising is that the company’s stock has underperformed the S&P 500 index during this period, with the broad market index rising by a staggering 34%. This marks one of the longest periods of underperformance in Amazon’s history.
Despite this, a closer look at the company’s financials reveals a phenomenal performance. Revenue is growing at a double-digit rate, with profit margins expanding significantly. If this trend continues, it’s likely that Amazon’s stock will soar to new heights in the next three years.
In its last quarter, Amazon reported a 10% year-over-year revenue growth to $148 billion, solidifying its position as one of the largest sales generators globally. The company’s dominance in e-commerce in the US and other markets, combined with the rapid growth of its cloud computing division, Amazon Web Services (AWS), which generates around $100 billion in revenue annually, are key drivers of this growth.
The tailwinds for both e-commerce and cloud computing are strong, with online retail sales expected to continue their upward trend and cloud computing projected to grow at an annual rate of 19.4% from 2024 to 2028. This bodes well for Amazon, which is likely to benefit from these trends and grow its revenue by at least 10% annually over the next three years.
Furthermore, Amazon’s operating margin has hit an all-time high of 9%, driven by the high profitability of its AWS, third-party seller services, and advertising segments. As these segments continue to grow faster than overall sales, the company’s operating margin is likely to expand further, driving earnings growth.
Additionally, Amazon’s recent workforce reductions are expected to lead to even more profit growth. With both revenue and operating margin expansion driving earnings growth, the company’s consolidated revenue is likely to grow by at least 10% annually over the next three years, reaching $804 billion in 2027. Applying a 15% profit margin to this figure would result in annual operating income of $120 billion, more than doubling the current level.
While it’s difficult to predict the exact stock price movement over the next three years, if Amazon achieves this level of earnings growth, shareholders are likely to be rewarded with significant returns. As the company’s profit inflection occurs, its share price is likely to climb higher and higher, making it an attractive investment opportunity for the long term.
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