DULL

By Steve Goldstein

Amazon says it may have two trillion-dollar-revenue businesses within a decade.

Amazon chief executive Andy Jassy set a bold target on the conference call announcing third-quarter earnings.

"There has never been a business with $1 trillion of annual revenue. Amazon is on a path to have two of them in AWS and stores," he said.

The highest corporate revenue on record appears to be the $713 billion that Walmart recorded in its year to Jan. 31.

Using back-of-the-envelope numbers, it's clear Wall Street is not expecting Amazon to reach Jassy's ambitions, at the moment.

Applying the 13.9% operating margin Amazon (AMZN) recorded in the third quarter to $2 trillion of revenue would lead to an annual operating profit of $280 billion. Even applying a lower multiple of say 15, instead of the current 19 times earnings, would lead to an Amazon valuation of $4.2 trillion, vs. the roughly $2.6 trillion it commands today.

To be fair, analysts do see at least one trillion-dollar business - in 2032. According to Visible Alpha, the expectation for 2032 is $1.78 trillion in revenue, with retail accounting for $1.05 trillion of that.

This year, Amazon in total is expected to generate $829 billion of revenue.

Back in August, Morgan Stanley analysts led by Brian Nowak saw a path for the AWS cloud division to achieve $1 trillion in revenue, in eight to 10 years.

Nowak said the notion of adding 8 gigawatts of capacity a year is a reasonable assumption, so the key question is monetization per incremental watt.

Jassy, in fact, was asked by Nowak about the $1 trillion AWS goal.

"We have very good visibility into the next few years and what AWS looks like, those types of growth rates when you do the math on the revenue and the revenue run rate we have get you pretty quickly to escalating numbers," the CEO said. "And then I'd say that on top of not believing that a lot of the usage we see today is going to attenuate anytime soon, we're still really early in enterprises using inference in their production applications in a pervasive way."

Other Wall Street analysts also are coming around to the idea. Citi analysts led by Ronald Josey said the guidance for 40% growth for AWS this year and next makes that $1 trillion goal achievable in the next five to 10 years.

-Steve Goldstein

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