Amazon has eyes on $2,000 a share

Momentum on its side — for now — as competition heats up

Shares of Amazon topped $1,000 Tuesday, a milestone that reflects its meteoric rise. So, next stop $2,000?

Analysts on Wall Street are overwhelmingly bullish — only one brokerage has a hold and none have “sells”, according to Bloomberg terminal data — and some of the most optimistic see shares hitting $1,250 in the next 12 months. Few want to miss out on one of the Internet’s biggest stock runs. Amazon shares are up 38% from a year ago and 14 times more valuable than they were a decade ago.

Yet momentum doesn’t last forever, an investing reality Apple shareholders finally faced two years ago.

The biggest threat to Amazon is the competition coming up in its rearview mirror, analysts say. In part because of CEO Jeff Bezos’ willingness to continually reinvest in research and new areas, the Seattlebased company has long had a massive first-mover advantage in both retail and Web services. That is now changing.

“Amazon is still the leader but the competitive environment is intensifying,” said Ed Yruma, managing director at KeyBanc Capital Markets.

Effectively, Amazon is two companies, one a retail e-commerce company building out a global marketplace, the other a

A driver of Amazon’s success has been its strong focus on both the consumer and investment in new technologies that keep it well ahead of the pack.

cloud storage and services company that accounted for the biggest share of the company’s consolidated operating income in the first quarter of 2017, outflanking retail profits.

On the retail side, archrival Walmart is the main potential roadblock to Amazon’s continued growth. Determined to move into e-commerce and with the advantage of a massive brick and mortar store base, Walmart is increasingly dynamic, Yruma said. Walmart has focused its efforts more on middle-income consumers. Amazon, in contrast, has made more inroads with upper- and upper-middle income consumers, Yruma said.

“You’re going to see more of the middle-income consumer moving to e-commerce — and they don’t have any loyalty to Amazon,” Yruma said.

With Walmart’s enormous logistics and distribution network and its acquisition of e-commerce company Jet.com last year, “they could very well begin to take away some of Amazon’s business,” said Scott Rothbort, a professor at Stillman School of Business at Seton Hall University.

The upside for Amazon is that there’s still a lot of market to move into. Edward Jones estimates that while current U.S. spending online is about 15% of the retail market, it could rise to as much as 30% in the long run.

“So there’s a lot of runway there,” Edward Jones Amazon analyst Josh Olson said.

While consumers think of Amazon as an e-commerce giant, in terms of profit it’s cloud computing business, AWS, is stronger. Amazon remains the clear leader in cloud computing, well ahead of both Microsoft and Google.

A driver of Amazon’s success has been its strong focus on both the consumer and investment in new technologies that keep it well ahead of the pack.

“Bezos has proven he’s focused on the long term, on shareholder return and the consumer. He understands both sides of the equation,” Olson said.