When brick-and-mortar stores were out of the question for anxious consumers during the COVID-19 pandemic, Amazon came to the rescue. Essentials like groceries and personal care items were available with free two-day shipping, and there were plenty of non-essentials to support stay-at-home activities.
On top of that, Amazon Web Services (AWS) was ready for action as schools and businesses moved to virtual models. It already had the largest share of the cloud computing market – by far – and pandemic-related demand cemented its place as the market leader.
Of course, once any company achieves record-breaking revenue growth, it’s a challenge to top that growth year-over-year. Can Amazon keep up the momentum, or will the company and its stock begin to cool down? Where will Amazon stock be in 1 year?
Amazon Prime Continues To Grow
Amazon’s fourth-quarter financial results demonstrated the resilience of its Amazon Prime program.
Though the company announced an increase in the subscription fee beginning in February 2022 for new members and March 2022 for renewing members, millions enrolled in the last three months of the year.
More importantly, renewal rates remained high despite the fact that consumers have begun their return to brick-and-mortar stores.
The company is committed to retaining and growing its share of the e-commerce market. To that end, operations capacity has nearly doubled since the start of 2020, and a large investment was made in transportation assets.
Amazon’s fulfillment center footprint has gotten markedly bigger, and Amazon now offers same-day delivery to 90 metropolitan areas in the United States – a figure that was just 48 metropolitan areas in 2018. The number of Amazon employees has also nearly doubled. Today, there are 1.6 million Amazon workers worldwide. That means 1 in every 153 Americans is an Amazon employee.
The company’s goal is to improve the value proposition for Prime members, ensuring that they continue to join and renew at high rates despite the increased fees. Aside from investing in its logistics infrastructure, Amazon has expanded the number of products eligible for free shipping by 50 percent, and it has developed a variety of member-exclusive savings opportunities.
For example, Prime members can participate in Prime Day deals, and their Prime membership gives them instant access to Amazon Music, Prime Gaming, Prime Reading, and Prime Video. That last one is working to compete with streaming giant Netflix by developing original content and securing popular programs such as The Lord of the Rings: The Rings of Power.
Sports fans are likely to add or renew Prime memberships because the streaming service has finalized terms for an 11-year partnership with the National Football League (NFL). Amazon Prime is now the only place to watch Thursday Night Football.
Amazon Web Services (AWS) Dominates The Market
When AWS launched, it was basically an afterthought – a byproduct of building cost-effective infrastructure for Amazon’s e-commerce platform.
It has since amassed 33 percent of the total cloud computing market share, which is more than its next two largest competitors combined. Microsoft Azure holds 21 percent of market share, and Google Cloud has just 10 percent.
That success makes a substantial impact on Amazon’s total revenues, and AWS’ contributions to top and bottom-line results have increased quarter-over-quarter and year-over-year.
In the quarter ended December 31, 2021, AWS revenue saw record-breaking revenue growth. Annualized run rate (ARR) went from $51 billion in the fourth quarter of 2020 to $71 billion in the fourth quarter of 2021 – the largest jump in the company’s history.
During the fourth quarter of 2021, Amazon hosted the tenth annual re:Invent conference. Approximately 26,000 people joined in person, and hundreds of thousands participated online. Over the course of the event, AWS announced 115 new features and services intended to increase its value proposition.
AWS boasts a long list of notable clients, and more are transitioning to AWS every quarter. During the fourth quarter, Nasdaq announced it would be moving its North American markets to AWS, and Best Buy selected AWS as the provider for its cloud infrastructure services.
Social media giant Meta, parent to Facebook, WhatsApp, and Instagram, also chose AWS to support research and development efforts in the artificial intelligence space.
In addition, Stellantis, parent to Jeep, Dodge, Ram, Chrysler, and Fiat, has decided to partner with AWS on global workforce upskilling efforts and acceleration of new digital products.
Meanwhile, existing clients have remained loyal to AWS. Some of the biggest names include Pfizer, Goldman Sachs, Adidas, and Rivian Automotive.
New Focus on Digital Advertising
Three companies have captured the vast majority of the digital advertising market: Alphabet (Google), Meta (Facebook), and Amazon.
In 2021, the three got 74 percent of the world’s digital advertising dollars – and it is worth noting this accounts for nearly half of the total global advertising spend for the year.
That’s an increase over 2020, when these three platforms had 67 percent of the world’s digital advertising dollars and 39 percent of the total global advertising spend.
Historically, Google has controlled the biggest share of this market, with Facebook close behind and Amazon trailing a distant third. However, the gap is closing quickly, and Amazon is catching up:
2019
- Google – 31.6 percent
- Facebook – 23.6 percent
- Amazon – 7.8 percent
2020
- Google – 28.9 percent
- Facebook – 24.9 percent
- Amazon – 10.3 percent
2021
- Google – 28.6 percent
- Facebook – 23.8 percent
- Amazon – 11.6 percent
2022 (projected)
- Google – 27.7 percent
- Facebook – 24.2 percent
- Amazon – 13.3 percent
2023 (projected)
- Google – 26.4 percent
- Facebook – 24.1 percent
- Amazon – 14.6 percent
Amazon’s ability to pull market share away from Google and Facebook may grow faster than projected because the company is now investing substantial resources in expanding this arm of the business. Ad revenue is now reported as a separate line item in earnings statements, which emphasizes the importance Amazon is placing on this division going forward.
That’s good news for Amazon’s profits – and ultimately, Amazon stock price – as digital advertising is a lucrative opportunity that is expected to grow rapidly in coming years. Worldwide, the digital advertising market hit $374.2 billion in 2020, representing a 15.7 percent compound annual growth rate (CAGR) since 2015.
The global digital advertising market is expected to maintain a CAGR of 15.3 percent through 2025, at which point it will be valued at $763.6 billion. After that, the CAGR is likely to drop to 13.7 percent through 2030. By then, the market will be valued at $1.449 trillion.
Where Will Amazon Stock Be In 1 Year?
Though e-commerce won’t grow at the rate it did during the pandemic, it will continue to grow. And Amazon is well-positioned to benefit from the increasing popularity of online shopping. AWS and the expanding digital advertising business are expected to drive most of the company’s growth in the coming year as new clients and expanded services bring in ever-increasing revenue.
There are other factors that will impact how Amazon stock fares in the coming year. One of the biggest is the 20-for-1 stock split that will take effect in June 2022. While stock splits don’t change the intrinsic value of the company, they do tend to drive share prices up.
Overall, analysts agree that Amazon stock is a strong buy, and the average 12-month price target (not adjusted for the stock split) is $4,143.76. The most pessimistic of the group suggested Amazon stock could be at $2,800 per share in one year, and the most optimistic put it at $5,000 per share.
The bottom line is that Amazon stock is a buy, and the sooner, the better. Those who add shares prior to the split may benefit from the expected post-split boost in price.
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