After struggling through a difficult year in 2022 — perhaps “difficult” is putting it lightly, as its share price was cut in half — Amazon.com Inc. (ticker: AMZN) stock has been on a vicious rally in the year-plus since. Through Jan. 29, AMZN stock is up 92% from its price at the end of 2022, more than triple the S&P 500’s 28.3% return over the same period.
Long-term Amazon investors have come to expect outperformance over the past 20 years. Since 2004, Amazon’s market capitalization has skyrocketed from tens of billions of dollars to more than $1.6 trillion, making Amazon one of the most valuable companies in the entire market.
[Sign up for stock news with our Invested newsletter.]
Shares of the leading online marketplace and cloud services provider haven’t made new all-time highs since 2021, but buying the dips in Amazon stock has historically been a wise move for long-term investors.
Amazon’s 20-Year Journey
Amazon was founded as an online bookstore by Jeff Bezos back in 1994, but the company has made several major pivots throughout its history. The company went public at a valuation of $300 million in 1997.
By 2003, Amazon had expanded its online marketplace beyond books to music, clothing and other goods sold by third parties.
Amazon launched its Amazon Prime loyalty program in 2005 — a membership that cost $79 annually and included free two-day shipping on any Amazon order. Prime has been a tremendous success for Amazon over the past 20 years, and there are now more than 200 million global Prime members. Since then, Amazon has been able to ratchet up its membership fees; a Prime membership now costs $139 annually or $14.99 per month.
In 2006, Amazon rolled out Amazon Unbox, a subscription video streaming and rental service later rebranded as Prime Video.
The following year, the company launched its Kindle electronic reading device, and in 2008 it acquired leading audiobooks company Audible.
In 2014, Amazon acquired video game streaming platform Twitch and launched the Amazon Echo smart speaker featuring its Alexa virtual assistant.
Amazon has also expanded beyond the digital world. The company opened its first physical store in 2015 and acquired grocery chain Whole Foods in 2017.
In 2015, Amazon even started its own annual shopping holiday, Amazon Prime Day.
Amazon has achieved remarkable success over the years despite some misses along the way. The company released its Fire phone in 2014, but it discontinued the project a year later after the Fire flopped.
The biggest move Amazon made in the past 20 years was the launch of its Amazon Web Services cloud computing business back in 2006. Over the past 18 years, AWS has been one of Amazon’s largest growth drivers. In the third quarter of 2023, AWS brought in more than $23 billion in revenue, representing a run rate of more than $92 billion annually.
Amazon founder Jeff Bezos resigned as Amazon’s CEO in July 2021 and was replaced by AWS chief executive Andy Jassy. The new CEO’s tenure got off to a rocky start, with the stock tumbling 35.3% during his first 12 months at the helm.
Aggressive Federal Reserve interest rate hikes in 2022 triggered a sell-off in tech stocks, and Amazon’s 49.4% decline in 2022 was its worst performance of any calendar year in the past two decades. Despite the broad market weakness, Amazon opted to execute a 20-for-1 stock split in 2022, its only stock split in the past 20 years.
[READ 7 Recent and Upcoming IPOs to Watch in 2024]
Amazon Performance
Amazon’s evolution and innovation have helped the company grow its revenue by roughly a hundredfold over the past two decades. Analysts expect full-year 2023 revenue of more than $526 billion, exactly two orders of magnitude greater than its 2003 revenue of $5.26 billion.
However, its heavy investments in growth initiatives have sometimes weighed on Amazon’s profitability along the way. In fact, Amazon reported a $2.7 billion net loss in 2022, which included an unrealized $12.7 billion loss on its 20% stake in electric vehicle maker Rivian Automotive Inc. (RIVN). This willingness to delay short-term gratification in the form of sacrificing profits has, however, resulted in incredible long-term performance. By giving up margins early and taking big risks, Amazon has captured a huge market share and hit several home runs.
Amazon’s ability to ace the “marshmallow test” becomes evident when looking at its long-term returns.
Over the past 20 years through Jan. 29, Amazon shares have generated a total return of 6,353% compared to a 235% total return for the S&P 500 during that stretch. Those gains translate to a 23.2% compound annual growth rate for Amazon compared to a 6.2% CAGR for the S&P 500 in that time.
As a result, $10,000 in AMZN stock purchased 20 years ago would now be worth $645,262. A $10,000 investment in the S&P over the same period, however, would amount to $33,452.
Analyst Outlook
Even after those extremely impressive long-term returns, many Wall Street analysts remain bullish on Amazon’s outlook. Among the 47 analysts covering the stock, Amazon has 43 “buy” or “strong buy” analyst ratings, and just four “hold” or “sell” ratings. The average analyst price target for AMZN stock is $169.38, suggesting 5% upside from its Jan. 29 closing price over the next 12 months.
CFRA Research analyst Arun Sundaram says shares have even more upside than the consensus analyst targets indicate. “AMZN is quickly turning into a highly profitable and (free cash flow) generating machine, as Q3 2023 demonstrated remarkable operating profit improvement in all three reporting segments,” Sundaram says. He rates the stock a “buy” and assigns a $180 price target for shares, representing 11.6% upside from its Jan. 29 closing price.
Of course, after AMZN’s rapid price surge in 2023, not all analysts see as much opportunity in shares as they once did. Morningstar’s Dan Romanoff, for example, gives the stock a three-star rating and a fair value estimate of $155, slightly below its current price. As for the underlying business, however, Romanoff is effusive with his praise.
“From a retail perspective, we expect continued innovation to help drive further share gains in a post-lockdown world. We also look for continued penetration into categories such as groceries and luxury goods that have not previously translated into the same level of success as other retail categories,” Romanoff says.
“We also see technology advancements in AWS and a bigger push to service enterprise customers as helping to maintain the company’s lead there. Overall, we see strong revenue and free cash flow growth for years to come,” Romanoff says.
As always, investors should do their own research and triangulate different market perspectives to develop their own outlook on shares. While long-term shareholders have been amply rewarded, it’s unlikely returns over the next 20 years will be quite as strong. The stock doesn’t have the compelling entry point that it did a year ago, but new investors will still be buying into a strong company with no end in sight to its dominance in online retail and cloud computing.
More from U.S. News
What’s the Best Cryptocurrency to Buy? 6 Contenders
10 of the Best Stocks to Buy for 2024
Artificial Intelligence Stocks: The 10 Best AI Companies
How Much Would $10,000 Invested in Amazon Stock 20 Years Ago Be Worth Today? originally appeared on usnews.com
Update 01/30/24: This story was previously published at an earlier date and has been updated with new information.
