A recent Morgan Stanley report says that e-commerce major Amazon Inc could top $1 trillion value in market capitalisation within the next one year. Currently, the firm commands a value of $547 billion. In its report on the company, Morgan Stanley reiterated its overweight ranking on the shares with a target stock price of $2,000. Amazon shares were trading at $1,136.84 this afternoon. “Amazon’s high margin [revenue] disclosure speaks to the $1trillion ($2,000/sh) sum of parts bull case,” analyst Brian Nowak of Morgan Stanley wrote in a note to clients on Sunday, in a report entitled “The Math Behind the Trillion Dollar Bull Case. The report pointed out, “ Our sum of the parts methodology looks out to 2022 for the 5 various segments (1P, 3P, AWS, Subscription, and Advertising/Other) and applies multiples based on what we view are appropriate peer groups, factoring in relative growth rates and margin profiles. We discount each segment back to year-end 2018 to arrive at a $2,000/share value or ~$1 trillion bull case.”
In the same report, the analyst shared his valuation methodology and key forecasts for each of Amazon’s businesses to reach the $2,000 share price target. Brian Nowak valued Amazon’s core retail business at $600 billion, estimating 13 percent annual sales growth for its e-commerce business in 2022 and a 5.5 percent operating profit margin that year. He also estimates its third-party marketplace business will achieve a 25 percent earnings before interest, tax, depreciation and amortization (EBITDA) profit margin in five years, says CNBC.
Last week, Apple Inc. briefly became the first company in United States to hit $900 billion market cap, as its stores around the world were inundated with customers trying to get their hands on the new iPhone X. Interestingly, companies with the highest market capitalisation has undergone a paradigm shift from oil and gas related companies to data-related players.
Ten years ago, in 2007, the list of the top 10 companies in the world by market capitalisation was largely dominated by Oil and Gas companies, with five of the 10 companies from energy sector. However, now in March 2017, there’s was only one Oil and Gas company on the list — the energy major ExxonMobil — and that too in the last spot! The top 10 was dominated by seven technology companies, with four of them occupying the top slots.