Amazon share price: Where next in 2020?

The bull case remains strong for Amazon.com, Inc., whose stock value has catapulted over 1,300% in the last decade. Still, there are a few things bears would like you to note.

Jeffrey Bezos, the chief executive and founder of Amazon.com, Inc. (NASDAQ: AMZN), might have lost a sizeable chunk of his fortune in a divorce settlement to his ex-wife last year, but he still ended 2019 as the richest man on earth.

It’s not hard to see why. Since 2016, Amazon shares have steadily grown their value by over 200%, from roughly US$607 per share, to its current sale price of US$1,845 per share.

At that rate, buy-in for Amazon.com, Inc’s stocks are among the highest in the US today. This equates to a market capitalisation of US$916.15 billion, behind only Apple and Microsoft. Bezos owns an estimated 12% of the company.

A review of 2019

In 2019, shares were also able to achieve a 52-week peak price of US$2,035.80 in July. This was just a fraction below the US$2,039.51 number achieved on 04 September 2018, which had pushed the company’s market cap above one trillion US dollars – only one of three companies in history to ever do so.

Stock value started to dip in the second half of 2019 but recovered in time to hit a five-month peak sale mark of US$1,869.80 on 27 December. Despite being down nearly 10% from July’s peak, Amazon’s shares are still trading above its 52-week moving average price of US$1,789.19, a healthy finish to the year.

In terms of the company’s overall financial performance, net income continued to grow by double digits. It gained 27.5% to US$11.35 billion for the first three quarters of FY2019, as against the US$8.9 billion recorded over the same period in 2018.

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Amazon.com, Inc.'s share price movement across 2019 (Source: IG)

Is US$2,400 per share in sight?

This number is set for further upside, according to US investment banking firm Cowen analyst John Blackledge. He believes the Amazon share price could rise to as high as US$2,400 in the next 12 months.

He said there are several near- and long-term catalysts for this, namely the ongoing popularity of its main e-commerce platform, the growing market share of Amazon Web Services (AWS) – the company’s cloud computing offering, as well as its expanding advertising business.

However, as it stands, AWS is growing more than the other segments. The unit’s trailing-nine-month operating margin of 26.3% is already higher than the company’s consolidated operating margin of 5.5% for the same time frame.

The outperformance of AWS had even prompted a CNBC interviewer to ask AWS CEO Andy Jassy recently, about the possibility of the cloud computing division splitting up into a separate entity from Amazon.com, though that was quickly shot down.

So far, Amazon has yet to make any bold predictions regarding the growing clout of the cloud arm – or any potential reorganisation, but with stats like that, any major shift in business strategy should not be ruled out, which would have a major impact on share price movements.

Amazon.com, Inc. currently has a ‘buy’ rating and an average stock price target of US$2,178.08, based on analyst ratings from The Wall Street Journal.

The bear case

But as the online shopping division’s growth rates begin to taper – according to the latest financial report, e-commerce globally accounted for 33% of net sales growth, versus 38% for AWS – a bear case can also be made against the premium stock.

While the third quarter was a win for AWS, it was also a cause for concern for the main online retail business – both domestically and internationally. Third quarter profit in 2019 declined for the first time in two years to US$2.13 billion, from US$2.88 billion a year ago.

Although the company indicated that a US$1.5 billion investment into a 24-hour delivery service for Amazon Prime members was to blame, Charlie O’Shea, analyst at Moody’s Investors Service, told Bloomberg it continues ‘to weigh heavily’ on the retail business’ profitability.

Globally, Amazon also continues to struggle turning in a profit. In the Q3 report, the international segment recorded yet another quarterly loss on a negative operating margin of US$386 million. Its overseas operations have yet to report a quarterly profit since Q2 of 2016.

Tom Forte, analyst at DA Davidson & Co. Amazon, also noted that AWS’ growth rates are at their lowest since it broke away as a separate segment, largely due to rising competition from Microsoft’s Azure and Google’s Cloud solutions.

And with its P/E ratio currently at 81.84, there is tremendous pressure on the company to deliver a strong fourth quarter, with so much investor expectations priced into the share value.

Still, Bezos – whose net worth remains just north of US$100 billion – believes the company is on track for renewed retail success.

‘Customers love the transition of Prime from two days to one day — they’ve already ordered billions of items with free one-day delivery this year,’ he said in an official statement. ‘It’s a big investment, and it’s the right long-term decision for customers.’

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Deze informatie is opgesteld door IG Europe GmbH en IG Markets Ltd (beide IG). Evenals de disclaimer hieronder bevat de tekst op deze pagina geen vermelding van onze prijzen, een aanbieding of een verzoek om een transactie in welk financieel instrument dan ook. IG aanvaardt geen verantwoordelijkheid voor het gebruik dat van deze opmerkingen kan worden gemaakt en voor de daaruit voortvloeiende gevolgen. IG geeft geen verklaring of garantie over de nauwkeurigheid of volledigheid van deze informatie. Iedere handeling van een persoon naar aanleiding hiervan is dan ook geheel op eigen risico. Een door IG gepubliceerd onderzoek houdt geen rekening met de specifieke beleggingsdoelstellingen, de financiële situatie en behoeften van een specifiek persoon die deze informatie onder ogen kan krijgen. Het is niet uitgevoerd conform juridische eisen die zodanig zijn opgesteld dat de onafhankelijkheid van onderzoek op het gebied van investeringen wordt bevorderd, en dient daarom als marketingcommunicatie te worden beschouwd. Hoewel wij er niet uitdrukkelijk van weerhouden worden om te handelen op basis van onze aanbevelingen en hiervan te profiteren alvorens ze met onze cliënten te delen, zijn wij hier niet op uit. Bekijk de volledige disclaimer inzake niet-onafhankelijk onderzoek en de driemaandelijkse samenvatting.

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