Looking Ahead for AMZN Stock
Amazon.com, Inc. (NASDAQ:AMZN) has the most controversial stock prices of all time. It is a company barely in the black, yet it trades at 533 times its earnings.
Some people would consider that crazy—not everyone though. One of Facebook’s early staff members, a guy who made boatloads of cash in Facebook stock, thinks Amazon could be worth $3.0 trillion in the near future.
His name is Chamath Palihapitiya.
“This is a story that’s just beginning,” Palihapitiya said at the Sohn Investment Conference in New York on Wednesday. “In fact, we believe and our models indicate that [Amazon] is a $3.0 trillion company in the next ten years.” (Source: “Amazon could be a $3 trillion company, says top VC,” Yahoo! Finance, May 5, 2016.)
As you can imagine, those words caused quite a stir in investment circles. AMZN stock would have to surge by 855% to reach a valuation of $3.0 trillion!
Normally, I would just shake my head at that kind of lunacy. But it’s different when it’s coming from this guy. He knows what he’s talking about.
After leaving Facebook, Palihapitiya spent some time enjoying his wealth.
He even bought himself a basketball team: the Golden State Warriors. Since he bought in, the Warriors have won an NBA championship and made history with 73 wins in the regular season.
Anything he touches turns to gold. That’s not the kind of guy you want to ignore.
So, even when Palihapitiya says Amazon’s retail division could hit $1.0 trillion, you pay attention. He says the retail business can thank its enormous potential to the “phenomenal” success of “Amazon Prime.”
He’s also bullish on “Amazon Web Services” (AWS), the firm’s cloud computing arm. I doubt anyone would disagree with him on that. AWS was solely responsible for turning Amazon profitable in the last few quarters.
“In order to understand the value of AWS, we think that Jeff [Bezos] is going to completely disrupt this market,” he said. “There are going to be unbelievable numbers of losers as AWS gets to scale.” (Source: Ibid.)
If Palihapitiya is right, Amazon stock could shoot through the roof.
“More capability. More power. Lower costs,” he continued. “What [Bezos] did to retail, he will do to IT.” (Source: Ibid.)
His point is that the IT business has much more attractive margins than retail. Securing a monopoly in that market could draw in enough profits to justify the $3.0-trillion price tag on AMZN stock.
The Facebook veteran also had glowing praise for Amazon’s founder. He knows that Jeff Bezos is the secret to Amazon’s success. Bezos is a savant at allocating capital, which is why he founded “the most incredible company in the world being built today.” (Source: Ibid.)
As Palihapitiya concluded, “If you believe in the Internet, you have to believe in Amazon. If you believe in buying things, you have to believe in Amazon. If you believe in consumer consumption you have to own Amazon.” (Source: Ibid.)