This year is the 20th anniversary of Amazon as a listed company.
If someone invested a dollar in the e-commerce giant in 1997, that one dollar would be worth more than US$380 today, an annual compound rate of 35 percent.
It all sounds amazing, except how many investors really managed to pull off such a stunt?
Picture this: If an investor experienced Amazon’s dramatic 95 percent crash between December 1999 and October 2001, how likely was it that he or she would have stayed calm and confident and kept the position?
Or consider this: Throughout Amazon’s history as a listed firm, in 16 years out of 20, its shares had seen a major intra-year correction of at least 20 percent. There were 199 times when the share suddenly slumped 6 percent in a day.
Amazon has posted a 20-year return that is only beaten by two other S&P 500 companies – Monster Beverage and Celgene. Compared with the index, Amazon outperformed by a hundred times.
I certainly think those investors who managed to hold Amazon for 20 years have done an incredible job. But at the same time, I also think someone has to be crazy enough to be able to do that.
Can Amazon keep this pace of appreciation? I doubt it.
Just do the simple maths. For that to happen, Amazon has to reach a market value of US$5 trillion by 2025. Of course, it’s possible, but highly unlikely.
Even if Amazon eliminates all the other US retailers and corner the entire US retail market for itself, some estimate that the profit generated would still put Amazon’s valuation at 60 times based on the current share price.
That’s just to give you an idea how crazy it is.
The full article appeared in the Hong Kong Economic Journal in Chinese on Jan. 6
Translation by Raymond Tsoi
– Contact us at [email protected]