Trending: Expedia CEO and CFO resign in surprise shakeup, as Barry Diller asserts control over travel giant
The first Amazon Go store in Seattle. (GeekWire Photo / Kaitlyn Wang)

As the closing bell rang Monday, Amazon had surpassed fellow Seattle-area tech giant Microsoft to become the world’s most valuable company. The jostling came after Amazon’s stock rose 8.5 percent in the first four trading days of the year.

On Monday, Pivotal Research Group analyst Brian Wieser issued a “buy” rating on the stock, predicting around 19 percent growth to reach $1,920 per share by the end of the year, up from $1,642 today.

“Despite its current massive size, we see Amazon’s opportunities as mostly unconstrained based on a successful track record of capitalizing on consumer and IT department spending,” Wieser wrote in a note.

Amazon briefly hit $1 trillion in market capitalization at over $2,000 per share in September — one month after Apple achieved the feat — but it has since fallen around 20 percent amid a larger stock market downswing.

What’s behind Wieser’s optimism? Here are his main points.

(GeekWire Photo / Kevin Lisota)

Amazon is more than an e-commerce company

Amazon already controls nearly half of all online spending in the U.S., according to eMarketer. But Wieser looked beyond its home turf for growth, assessing the company’s opportunities based on a much wider view of the retail market that includes its efforts in healthcare and entertainment services.

“We see Amazon’s retail activities as a play on global consumer spending, which is much broader than pure retail or today’s e-commerce business,” Wieser wrote. He pegged Amazon’s current share of global consumer spending at 1 percent, indicating heaps of potential growth, but nevertheless anticipated the company’s retail growth to slow from more than 22 percent in 2018 toward 13 percent by 2023, mainly due to its “already-massive” size.

Advertising will grow faster than all other areas

Wieser estimated that Amazon’s growing advertising business took in around $9 billion in 2018, with roughly $6 billion coming from traditional digital advertising budgets — the dollars that make up the bulk of Facebook and Google’s revenue.

“Display budgets could flow from general display advertising or from Facebook or Google or anywhere else,” Wieser wrote. “And of course, as Amazon develops its connected TV offerings and ultimately makes more of its original programming available on an ad-supported basis, it will probably be able to compete for TV budgets.”

He anticipated that advertising will grow faster than any other revenue stream, hitting $38 billion by 2023.

Amazon Web Services is strong, and hardware is an opportunity

AWS should clear around $25 billion in revenue from its cloud business in 2018, according to Wieser. For reference, the wider cloud marketplace grew 32 percent in 2018 with revenues passing $250 billion, according to a new report from Synergy Research Group.

But Amazon’s dark horse may be selling hardware in addition to its popular cloud services. “Amazon is undoubtedly going to continue expanding its product offerings as well, including an expansion beyond software to include more hardware, too,” Wieser wrote. In building out its own cloud infrastructure, Amazon has built industry-leading routers, chips and servers.

Potential risks

As for the risks that could derail Amazon’s growth, Wieser said a recession would greatly reduce consumer spending and ad budgets. Ongoing international tensions could affect the large volume of international sales coming from China, as could changes to the postal regulations.

Like what you're reading? Subscribe to GeekWire's free newsletters to catch every headline

Comments

Job Listings on GeekWork

Find more jobs on GeekWork. Employers, post a job here.