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Amazon.com Inc. (NSDQ:AMZN) stock has been on a tear for the better part of the last 2 decades. AMZN stock price is up from its split-adjusted IPO price of $1.5, closing the last trading session at $767.33, a whopping 511X return in a little under 2 decades. While these historical returns definitely qualify as multi-bagger returns, could Amazon be a multi-bagger stock even today? At a market cap of $367.3B (as of Dec 8 closing price)? Well, that's what a couple of Amazon bulls on Wall Street think. And, according to them, Amazon could be worth a trillion dollars or more within a decade from now. So, how realistic are those claims and can AMZN stock realistically hit those levels?

Amazon Market Cap Could Hit $1 Trillion In 5 Years

Yes, you read that right. Amazon could well be on the way to becoming the first $1 Trillion market cap company. RBC capital analyst Mark Mahaney recently laid out his aggressive outlook on AMZN stock and the path to a $1 trillion market cap. Though the analyst did claim that his analysis is 'Just for fun', there is a possibility of his outlook turning into reality. As reported by Business Insider:

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.

The RBC capital markets internet analyst then used a 10% margin for the retail business and a 40% margin for the cloud business, calling for an EPS of $82, which at 25X would value AMZN stock at $2000/share, equating to a $1 Trillion market cap.

Well, If this wasn't bullish enough, hedge fund manager Chamath Palihapitiya believes Amazon could be worth $3 Trillion a decade from now. That's basically a nearly 10X return in 10 years. Quoting from an earlier article on Business Insider:

Palihapitya said that the company's retail business will be worth $1 trillion as of 2025, its Amazon Web Services business will be worth $1.5 trillion, and there is another $0.5 trillion in the magic that Amazon CEO Jeff Bezos brings to the company. 

What Palihapitiya basically believes is that Mark's growth assumptions will extend to a decade and Amazon could well be a 10X multi-bagger in 10 years. Can Amazon stock actually achieve these monstrous gains? What exactly should the company do to achieve these 10X gains?

The Magical '26% Growth'

In a recent lecture at Peking university, famed Indian investor and hedge fund manager Mohnish Pabrai spoke on the quest of 10x-100x baggers. He distilled down his thoughts to just one number: 26%. A CAGR (compounded annual growth rate) of 26% doubles your investment every 3 years, returns 10x in 10 years, hits 100X in 20 years. Hence, to be a 10X stock the right question to ask is whether or not Amazon can grow its earnings at a 26%+ CAGR over the next 10 years. Why earnings? Well, as the old wall street adage goes: "Earnings are the mother's milk of stocks".

Wall Street analyst consensus expects Amazon to report EPS of $4.77 for 2016, implying a 280%+ YoY growth over FY 2015. The FY 2017 consensus calls for earnings of $8.94, which implies an 87%+ YoY growth. With Wall Street analysts expecting AMZN earnings to grow at nearly 42% every year over the next 5 years, Amazon is head and shoulders over the required 26% earnings growth to be a multi-bagger stock.

Amazon Has Huge Opportunities Ahead Of It

Amazon is a market leader in 2 rapidly growing industries. With the broader e-commerce and cloud industries set for huge growth, a $1 Trillion market cap for Amazon could be a certain possibility. As per eMarketer research, online retail sales will hit $1.915 Trillion in 2016, accounting for 8.7% of overall retail sales. The research firm expects online retail sales to double over the next 4 years to $4.05 Trillion, accounting for 14.6% of overall retail sales in 2020. With Amazon constantly looking to expand into new segments of the e-commerce/retail market, Amazon Go and the efforts in Grocery delivery are recent examples which come to mind, Amazon could well take a majority of that $2 Trillion growth in annual e-commerce sales.

Amazon is expected to finish FY2016 with $137B in revenue, of which $12B will be accounted for by AWS. That puts Amazon's retail revenue at nearly $125B, giving Amazon a 6.5% share of the global e-commerce market. With Amazon constantly looking to expand into new segments of the e-commerce/retail market, Amazon Go and efforts in Grocery delivery are recent examples which come to mind, while also entering new geographic segments, Amazon could well take a bigger pie of that $2 Trillion growth in annual e-commerce sales. A 10% market share of the global market would put Amazon's retail revenues at $400B in 2020, implying a 33% annual growth over the next 4 years. To put things in perspective, Amazon accounted for 41.2% of total e-commerce sales in the Jan-April period. The company is growing faster on the international front and hence the 10% market share assumption is not too much of a stretch. 

On the cloud front, Amazon's cloud service offering, AWS is the undisputed leader of the public cloud market. According to research firm IDC, the public cloud spending is expected to grow at nearly 20% over the next few years. AWS operates at a significantly higher profit margin as compared to Amazon's retail operations, with the unit accounting for nearly two-thirds of the operating profits over the last 4 quarters while accounting for just 9% of revenue. Given the rapidly growing top line (in excess of 50 

% YoY) and its higher profitability, the AWS segment will be the key driver of Amazon's earnings growth over the coming years. The AWS segment has grown its operating profits from $673M in 2013 to $1.86B in FY2015, implying a 66% annual growth in profits. 

Conclusion

RBC capital markets analyst Mark Mahaney recently explored the idea of Amazon hitting a $1 Trillion market cap. Though the analyst highlighted that his outlook was just for fun, a deeper look into the operating segments reveals that Amazon could, in fact, hit a $1 Trillion market cap faster than many think. Mark was preceded by another hedge fund manager, Chamath Palihapitiya, claiming that Amazon could be worth $3 Trillion within a decade. Amazon's growing dominance in the e-commerce and cloud markets, which are slated for rapid growth over the next few years will help Amazon sustain its current levels of growth. With the street expecting the e-commerce giant to grow its earnings at nearly 42%, AMZN earnings could grow faster than the 26% 'magical' rate, which is required to be a multibagger. Amazon stock could, therefore, be a multibagger stock even today.