Amazon (AMZN) enters 2021 with plenty of big opportunities, from its traditional business of e-commerce and cloud-computing services to newer markets such as grocery delivery and pharmacy services. Altogether it looks to provide fuel for continued growth in Amazon stock.
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This past year, Amazon has aggressively built fulfillment centers, a leading indicator of overall company growth. These highly automated facilities are where employees pick, pack and ship orders. Amazon expects to end 2020 with 410 million square feet of fulfillment center operations. That’s up 80% from the year-ago period.
The centers are key to Amazon achieving its goal of large scale one-day delivery of goods, available to Amazon Prime customers. It will also boost Amazon’s continued expansion into grocery delivery. Groceries are a $700 billion market in the U.S.
“Heading into 2021, as demand starts to shift to grocery and discretionary items, we expect Amazon will be able to meet its goal of accelerating Prime delivery to one day and grocery delivery to several hours,” wrote Mizuho Securities analyst James Lee, in a note to clients. Lee has a buy rating on Amazon stock and price target of 4,000.
Amazon Stock: Opportunities In Pharmacy
In addition, Amazon is tapping into the $350 billion market for prescription drugs. The company fired a big shot across the bow of drugstores and prescription drug wholesalers on Nov. 17 when it launched Amazon Pharmacy. The new unit will offer Amazon Prime members discounts of up to 80% on generic drugs and 40% on brand medications.
A survey of 1,100 adults by Jefferies found that 55% likely will try Amazon pharmacy services. Also, 45% would consider making it their primary source of prescription medications.
“Even modest penetration of the pharmacy market would give Amazon another multibillion high-margin business, while providing a platform for other consumer health care initiatives,” Jefferies analyst Brent Thill said in a note to clients. He has a buy rating on Amazon stock and price target of 3,800.
Amazon also enters 2021 as the clear leader in cloud computing services, followed by Microsoft (MSFT) and Alphabet (GOOGL)-owned Google. Cloud operations have been enlarged by Covid-19, as employees work from home and as businesses digitize more of their operations.
Amazon revenue from cloud services is expected to climb 37% to 62.4 billion in 2021.
Opportunities In Advertising
Another growth vehicle for Amazon in 2021 is advertising. When looking for a product, about half of U.S. adults start their search with Amazon. More searches draw more advertisers. And as Covid-19 has caused more consumers to shop online that will keep Amazon’s ad growth humming.
“Ad revenue growth will be a powerful upside profit driver for Amazon in 2021,” Needham analyst Laura Martin said in her report to clients.
Wall Street sees Amazon ad revenue in 2021 $26.1 billion, up 37%. Amazon stock is up about 74% in 2020 but is down about 9.5% from its record high of 3,552.25 in September. Is Amazon stock a buy?
The consensus among analysts, as polled by FactSet, is for Amazon to show a 30% rise in adjusted earnings in 2021. Revenue is expected to climb 18% to $448.6 billion.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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