Amazon's total market value passed $1 trillion on Tuesday, following Apple's ascent into 13-digit territory at the beginning of August. Amazon and Apple now make up more than 8 percent of the entire value of the S&P 500, according to Howard Silverblatt, senior index analyst for S&P.
A trillion dollars may be an arbitrary threshold, but it’s still a remarkable statement of how quickly the 24-year-old company has grown, and the confidence investors have in its future.
Investors are more excited about Amazon than other grocery, building supply, and general retail stocks, which have an average price-to-earnings ratio of between about 20 and 40 for the previous year, according to New York University finance professor and valuation expert Aswath Damodaran. Amazon’s price-to-earnings ratio is about 180.
At the beginning of 2018, the company was worth just $580 billion. In the second quarter, the company’s net income ballooned to $2.5 billion, compared to $197 million in second quarter of 2017.
Driving those margins: The success of Amazon Web Services, the company’s cloud business, as well as the advertising it sells across its sites and revenues from Prime membership subscriptions.
Morgan Stanley recently raised its price target to $2,500, which would make Amazon worth $1.2 trillion, based on revenue growth projections of 24 percent per year through 2020. It values Amazon Web Services, now a ubiquitous layer of the internet that supports enterprises ranging from the smallest start-up to the Central Intelligence Agency, at $375 billion.
The company’s moves over the past year have even won over former sceptics who previously believed Amazon’s stock was overhyped.
Daniel Martins, who heads his own independent research firm, thought Amazon was too expensive in early 2017 because optimistic growth expectations seemed already baked in to the price. But after evaluating its most recent financial results, including aggressive expansion into new industries and other countries, he now predicts Amazon could double in value by 2020.
Follow N1 via mobile apps for Android | iPhone/iPad | Windows| and social media on Twitter | Facebook.
