Amazon has been on an absolute tear over the past 18 months, more than doubling its market cap to roughly $360 billion.
But according to RBC Capital’s managing director Mark Mahaney, there’s still plenty of room to grow.
In fact, Mahaney is so bullish on Amazon’s growth potential that he sees it becoming the first $1 trillion business within the next five years.
Mahaney laid out his thinking on Wednesday at Business Insider’s annual conference, Ignition. Although he pointed out this is “just for fun” and is based on the assumption that Amazon’s core business continues to execute “really well,” his basic premise actually makes a lot of sense.
Basically, Mahaney forecasts Amazon’s retail business will continue to grow 20% year-over-year on average, while the AWS cloud business will grow at a 40% annual clip for the next five years. In its most recent quarter, Amazon’s retail grew a little over 25% year-over-year. AWS grew 55% year-over-year.
Then, put a 10% margin on the retail side, and a 40% margin on AWS, and you would get to roughly $82 in earnings per share, he said. If you give a “modest” 25X P/E multiple on that, Amazon’s stock will hit $2,000, which would equate to a $1 trillion market cap.
On top of that, e-commerce only accounts for roughly 10% of total retail, and Amazon is the leader in the space, meaning there’s still tons of market opportunity, he said.
And this is only based on Amazon’s core retail and cloud business. The company is constantly investing in other areas in search for its fourth pillar of growth, so another big revenue source could emerge over the next five years. Mahaney believes that could come from one of the following areas: business supplies sales, groceries, shipping logistics, and artificial intelligence/virtual reality (AI/VR).
Mahaney isn’t the only high-profile investor to predict Amazon’s trillion-dollar valuation. Chamath Palihapitiya, CEO of venture-capital fund Social Capital, recently said that he sees Amazon becoming a $3 trillion company a decade from now.
Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.