Here’s why Amazon may beat Apple to $2 trillion
Now that Amazon joined Apple in the trillion dollar market value club Tuesday, the race is on to see which company can cross $2 trillion.
At least one analyst is predicting that Amazon will eventually beat Apple to the mark.
D.A. Davidson’s Tom Forte said in an email Tuesday that Amazon may have the upper hand on Apple, because it has more room to grow.
The company has gotten to its current valuation partly because its cloud computing unit, Amazon Web Services, is booming.
Forte wrote that it has “been a godsend for the company’s profitability and, ultimately, its share price.” He added that if Amazon was “a money losing e-commerce company, we would not be here today.”
The strength of its web services business has allowed Amazon to continue to expand into other non-core areas. Last year it bought Whole Foods, and it recently bought online pharmacy Pillpack. Some rumors say Amazon may want to move even further into the media business and buy the Landmark movie theater chain.
And Forte thinks there are two other areas of retail that could also help lift the Jeff Bezos-led company to a $2 trillion market cap: gas stations and travel.
Going after Costco and Priceline?
Forte argued in a recent report that Amazon could emulate the model of Costco, which owns and operates gas stations at some of its giant warehouse stores.
He added that the company could offer discounts on fuel to lure drivers who are also Amazon Prime subscribers.
But it's not clear how Amazon would enter the gas station business. Many of its Amazon-branded stores are smaller, urban ones that don't lend themselves to having a gas station.
Another possibility could be opening gas stations at larger, suburban Whole Foods locations.
As for travel, Amazon actually already attempted to get into that business. But its Amazon Destinations site lasted only a few months in 2015 before being shut down.
Forte thinks that Amazon could try again, and offer services ranging from discounts on cruises and rental cars to airline tickets and hotel reservations. He said Amazon could consider a rival to home sharing site Airbnb, as well.
He's not the only one on Wall Street that thinks Amazon may make another run at the travel business. Morgan Stanley put out a report in March suggesting that Amazon may go after the likes of Priceline owner Booking Holdings and its rival Expedia.
Forte said Amazon's burgeoning gaming business, led by video site Twitch, could also give a big boost to Amazon.
In fact, Forte cited the opportunity from eSports as a reason why he raised his near-term price target for Wednesday to $2,450 a share. That's almost 25% higher than the current stock price and would value at Amazon at about $1.2 trillion.
Firing on all cylinders
But Amazon would have to more than double to get to $2 trillion, which isn't far-fetched
The stock did just that over the past 12 months, and it's soared nearly 600% in just the past five years.
If Amazon continues to post impressive earnings growth over the next few years, then $2 trillion may not seem out of the question.
That's why one money manager who focuses on growth stocks also prefers Amazon over Apple.
"Amazon continues to fire on all cylinders," said Matt Benkendorf, chief investment officer of Vontobel Quality Growth. "This is unequivocally a franchise that gets stronger as it gets bigger."
Benkendorf added that Amazon's big investments on Amazon Web Services and its retail operations are starting to yield sizable profits. As for why he owns Amazon but not Apple, Benkendorf said "there are questions about Apple's sustainability of growth."
Wall Street agrees.
Amazon's profits are expected to rise at a much more rapid clip than Apple's.
Analysts are forecasting average annual earnings growth of 46% for Amazon over the next five years, compared with estimates of just 13% growth annually for Apple.