Generally speaking, investors should exercise caution when making any predictions about a particular company. Factors that impact an organization's top and bottom lines are forever changing, and nobody owns a crystal ball. It's a tricky endeavor to say the least.
On the flip side, making educated guesses about a company's future is -- ultimately -- what investors do. The key to successfully doing it is identifying the internal and external trends that matter the most, and then figuring out how well an organization is equipped to capitalize on its opportunities and minimize its threats.
With that as the backdrop, here's a look at the two key trends that will impact Amazon (AMZN 3.43%) and its stock the most over the course of the next five years.
Spoiler alert: Current and prospective Amazon shareholders are going to like the conclusion.
A deeper dive into Amazon's inner workings
Amazon is of course the world's leading e-commerce player (as measured by revenue), and the planet's fourth-biggest company (as measured by market cap). Amazon is far from being a simple online shopping mall, however. It's made up of three distinct operating units, two of which are evolving in a way that was unthinkable just a few years ago.
The two business segments undergoing an evolution right now are Amazon's North American e-commerce operation and its international e-commerce operation -- although the evolution is the same in both cases. That is, facilitating the sale of goods online is no longer the core goal of these businesses. With over 2 billion people now visiting Amazon's online malls every month, the company's new profit center is advertising; lots of Amazon's 2 million-plus third-party sellers are paying the platform to prominently feature their products on the site.
And it's grown into a pretty significant business. Amazon collected $14.6 billion worth of ad revenue during the final quarter of last year, up 19% year over year, and extending a long-standing trend.
Data source: Amazon. Chart by author. Figures are in billions.
That's still only about 8% of its total revenue. However, the advertising business produces high-margin revenue. It's conceivable that the company will eventually generate more profits as an advertising medium than it ever could produce as an e-commerce platform. Also note that both its domestic and international e-commerce arms are becoming more profitable -- and more consistently profitable -- than they've ever been, now that Amazon's ad business accounts for part of these businesses.
Data source: Amazon. Chart by author. Figures are in billions.
There's plenty more growth on this front to reap too. Insider Intelligence expects Amazon's ad revenue will roll in at $67.6 billion in 2025 versus last year's tally of $46.8 billion. Looking further down the road, media buyer GroupM says this type of marketing (called retail media advertising) will surpass worldwide television ad spending by 2028. Amazon will very likely maintain its lead in this space.
The other megatrend Amazon is plugged into? Cloud computing.
When the company first ventured into the business in the early 2000s, not everyone supported the idea. Critics feared it would be a costly distraction from its core e-commerce operation. In retrospect, however, it was clearly a genius move. While Amazon Web Services only accounts for around 16% of the company's total top line, it makes up two-thirds of Amazon's operating income.
Data source: Amazon. Chart by author. Revenue and operating income figures are in billions of dollars.
AWS' earnings are still only scratching the surface of their eventual potential, though. Mordor Intelligence believes the global cloud computing market will swell from just under $700 billion this year to more than $1.4 trillion in 2029. That's an annualized growth rate of over 16%.
Five-year predictions
Again, you should always take caution when making long-term projections about any company. Things can change over time. In the same vein, take anyone else's long-term predictions for a company with a grain of salt.
On the flip side, don't look past the obvious trends you have good reason to believe will persist for many more years. Even just extrapolating a company's current growth rate into the future is a reasonable approach in determining the sort of results that an organization is likely to produce down the road.
To this end, analysts collectively believe Amazon will be driving annual revenue of around $1 trillion by 2028. Most of that will still be e-commerce revenue, albeit boosted more by advertising's growth than the sale of more goods (although both will make meaningful contributions). At the same time, assuming AWS merely matches the projected growth rates for the overall cloud computing market, AWS could be producing annual revenue of around $200 billion by then. That's a little more than twice its revenue right now.
As for profits, the analyst community is calling for per-share earnings of $9.25 in 2028 versus 2023's comparison of $2.90. Profit growth will likely outpace sales growth simply because faster-growing cloud computing is a (much) higher-margin business. Advertising is also a higher-margin business than conventional e-commerce alone otherwise is.
Data source: StockAnalysis.com. Chart by author. Revenue figures are in billions.
Stock price predictions are even trickier to make. Still, we can use Amazon stock's present valuation to at least figure out a plausible target price. Trading at around 50 times forward-looking earnings and a little less than 3 times its trailing-12-month sales, Amazon shares could be in the ballpark of $400 apiece in 2028.
Again, that's just a guess ... and one that's far from guaranteed. As was already noted, though, investing is largely about making educated guesses and then taking a leap of faith.
Whatever the future holds, Amazon's a solid long-term name to own whether or not the stock's going to reach this ad-hoc long-term price objective.
