No investor owns a functioning crystal ball. That's why all investing has some element of risk; we never know for sure what awaits stocks or their underlying companies.
Nevertheless, it is possible to use historical data and current information to figure out where a company is likely to be at some point in the future.
To this end, here's a look at where e-commerce giant Amazon (AMZN -1.27%) is apt to be five years from now.
Amazon, up close and personal
You of course know the company. Amazon is doing on the order of $540 billion worth of business per year, with most of those sales coming from its e-commerce operation. Indeed, Amazon.com is North America's single-biggest online shopping venue. Numbers from Insider Intelligence indicate the company handles 38% of the United States' total e-commerce spending.
Data source: Amazon Inc. Chart by author. All figures are in billions.
Meanwhile, the bulk of the company's operating income is still being driven by its cloud-computing arm. Amazon Web Services (AWS) is the world's leading public cloud-computing service provider, in fact, with Synergy Research Group estimating it controls more than 30% of this global market.
Data source: Amazon Inc. Chart by author. All figures are in billions.
Given its growth, growth trends, and growth prospects to date, investors collectively feel Amazon shares are currently worth right around $135 apiece.
But what will the stock arguably be worth five years from now? To get a handle on that, you have to take a step back and figure out what's working for and against the company, and how those things might change between now and then.
With that as the backdrop, there are three overarching dynamics that will impact Amazon and its stock price over the course of the coming five years. Once you understand them, it becomes much easier to figure out what awaits Amazon.
Keep your finger on the pulse of these three trends
Don't misunderstand. Amazon is a complex company with lots of moving parts. If one of them breaks, it can put stress on another.
There are three megatrends, however, that matter more than anything else at this time.
1. Cloud computing is a huge growth opportunity
During the second quarter of this year, Amazon Web Services turned $22.1 billion worth of revenue into operating income of nearly $5.4 billion, extending a long-term growth streak that bumped into a bit of a headwind earlier this year.
This market is still in its early days, however. An outlook from Precedence Research suggests the worldwide cloud-computing market is on pace to grow at an annualized clip of more than 17% through 2030, at which point it will be more than a $1.6 trillion business.
Assuming AWS can hang into its existing one-third share, it will be generating roughly $500 billion worth of annual sales then, with more than $100 billion of those sales being turned into operating income. That's about as much operating income Amazon has generated in the entirety of its existence since launching back in 1995.
2. Online shopping, meanwhile, is becoming a commodity
There's no denying Amazon gets the bulk of the credit for building the e-commerce market it now leads. There's also no denying its competitors are finally catching up and even chipping away at Amazon.com's dominance. Walmart now accounts for around 7% of the nation's online sales, according to data from eMarketer, while Shopify's customers collectively make up roughly one-tenth of the United States' total e-commerce business. Many of Amazon's listed products can now be purchased elsewhere -- and sometimes at a lower price.
Fortunately, Amazon's e-commerce operation has never been one that boasts wide margins; Jeff Bezos was always more interested in simply winning over new customers. As such, this competitive pressure doesn't pose too much of an additional threat to the company's existing bottom line.
Unfortunately, these improving competitors will still put pressure on the thin profit margins Amazon has historically produced.
3. Everything else is mattering more and more
Finally, merchandise sales may be poised to become even less of a profit center than they are now. Take a closer look at everything else Amazon is doing that could produce a profit just by leveraging Amazon.com's current (and growing) average reach of more than two billion visits per month.
Case in point: Amazon's nascent advertising business -- money its sellers pay the company for their goods to be featured -- generated nearly $10.7 billion worth of high-margin revenue last quarter, up 22% year over year. Its annualized revenue run rate now stands near $40 billion, yet media-buying agency GroupM believes this retail media advertising market will grow at an average pace of nearly 10% per year through 2028 when it will be worth nearly $126 billion. It's conceivable that Amazon will eventually be turning more of a profit on ad sales than it ever could just by selling merchandise.
Then there's Amazon's in-house shipping services. First established to defray the rising cost of using third-party shippers like United Parcel Services or FedEx, it's evolving into a third-party delivery service in its own right. You've not heard much about this initiative since it first launched in 2021. The company's still doing it though, perhaps working out any potential kinks before turning up the sales heat on the service.
Whatever the case, market research outfit IMARC indicates the North American logistics market is worth roughly $1.4 trillion per year but will be worth more than $1.6 trillion by 2028.
And those are just a couple of the businesses Amazon is cultivating outside of cloud computing and e-commerce.
Connecting the dots
Still, what do these growth opportunities mean for Amazon and by extension, for Amazon stock?
Once again, nobody owns a crystal ball. Given what we do know though, it's not outrageous to expect Amazon's current annual revenue of more than $500 billion to reach the $1 trillion mark within five years. Full-year operating income of more than $20 billion could also subsequently double during this time frame, approaching $50 billion. Indeed, it could be even more if CEO Andy Jassy is able to extract the full fiscal benefit of greater scale. As such, don't be surprised to see the value of Amazon stock also double -- again -- during this five-year span. That would put it near $270 per share at some point in 2028, which is in line with the few estimates that look that far down the road.
Of course (and as always), bear in mind that something dramatic could change in the meantime, and no stock moves from one price to another in a straight line.
