Morgan Stanley claims Amazon to be worth $1 Trillion by 2018, mainly due to its growth in its cloud, prime and online service. Forbes Peter Cohen believes Amazon shares will hit $2000 as well. Try to Google Amazon $2000, there are more than a few contributors strongly citing this case when Amazon just return above the $1,100 mark recently. Will Amazon be the share to buy in 2018? Let’s proceed with MooMooCoo analysis.
Amazon is like a Death Star moving across the Galaxy. Every planet (industry) comes within its reach will be severely hurt. (Jim Cramer)
1. Key Business Areas
2. Amazon movements in 2017
3. Technical Analysis
The basic fundamentals PE and EPS ratio does not give Amazon much credit. The current PE ratio is over 250 and if compared with its rival and peers (i.e Apple, Microsoft, AliBaba), Amazon needs to make 10X its current net income. This means that investors are already confident in these future earnings which will happen in a foreseeable future.
Some reasons why investors invest to lock in the gains early is because of the new business the companies introduce. 1. Amazon Web Service is a completely new billion dollar business created by Jeff Bezos to take on cloud computing. 2. Amazon prime subscription business model. 3. Amazon AI and machine learning capabilities to enhance its AWS business. 4. The innovation of its own low-cost products like Kindle and Alexa.
All the technical analysis ratio and indicators cannot be applied to Amazon. Amazon is a mega revenue generator but terrible at generating net income. Jeff Bezos is the top 3 richest man in the world because of the value of Amazon not because of the net money income he has gain.
The main reason is that every penny the company generates from sales revenue is pump back into its products, logistics, AWS and new business division. Check this interesting well-written analysis.
Amazon is so powerful that for every business sector it touches, everyone else falls. When Amazon starts selling furniture, existing business fail. Amazon bought Twitch years ago knowing that esports would be the next big thing. Rather than setting up gaming platform, they capitalise on the media. Amazon bought Love Film to capitalise on the video streaming business and now they are up against Netflix creating original content.
4. Amazon’s Weakness
The bigger they are, the larger they fall. Let me state my facts.
5. Final Conclusion
Investing on Amazon is a completely different kettle of fish. You are not investing in its future value because the current financial ratio of its net income and cash flow simply fails all the ratio indicators. Instead you are investing on the value of the company and its rapid expansion.
Investment in Amazon shares is an Investment in the value of the company.
Remember the risk is considerably high as well. If Amazon starts to deteriorate there is a potential of losing 90% of its share value up to $150 per share which reflect its actual PE ratio. What would be the chance of that when you have Jeff Bezos as the visionary? Very unlikely.
If you have Amazon Shares under $1,000, you should hold. If you don’t own Amazon shares, please just wait for the next big correction cycle 2017/18 as my personal recommendation.
Will Amazon Reach $2,000 in 2018? Personally, I would say 40% chance of that happening. And would be 60% in 2019. I think Amazon will reach $2,000 before 2020.
Final Words, I am not fixated on the price of Amazon shares just now. Instead, I am more intrigued with what Jeff Bezos will be coming up next. The only company which is close to Amazon ambitions is Tesla’s Elon Musk.
If I want to invest in steady shares which income and revenue by a low-cost margin, I would choose Facebook for now!