With Amazon.com, Inc. (Nasdaq: AMZN) stock closing on on a 50 percent full-year gain in 2017, Amazon investors are enjoying another spectacular year.
Amazon’s market cap has now expanded past $544 billion, but Morgan Stanley analyst Brian Nowak says Amazon is well on its way to becoming a $1 trillion company within the next five years.
In a new research note, Nowak outlined a long-term sum-of-the-parts valuation for Amazon that could put the stock at $2,000 per share by 2022.
The $1 trillion number is built on the back of a projected $600 billion valuation for Amazon’s core e-commerce retail business. Morgan Stanley projects Amazon’s retail business will hit 5.5 percent earnings margins by 2022, up from just 2 percent in 2017. Nowak also says Amazon’s retail segment could still be generating impressive 13 percent annual revenue growth five years down the line.
On top of the $600 billion retail valuation, Morgan Stanley projects AWS will hit a $270 billion valuation within five years as well. Nowak says Amazon Web Services should command a higher earnings multiple than its cloud services peers due to its best-in-class growth and margins.
Morgan Stanley projects Amazon’s subscription business will be valued at $70 billion once global Prime membership hits 146 million global households.
Finally, Nowak says Amazon’s advertising and other businesses could easily be worth $55 billion by 2022. This estimate includes 22 percent compound annual revenue growth over the next five years, which Nowak says is potentially conservative.
All together, the bull-case value estimates of Amazon’s five business segments total $995 billion, within 0.5 percent of $1 trillion.
In the near term, Nowak says Amazon stock is an attractive growth opportunity for investors that should continue to provide solid returns while it works its way to the $1 trillion mark.
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