The voice assistant technology could generate as much as $10 billion in revenue by 2020, Mahaney said, with about $5 billion of that number coming from device sales and the remaining $5 billion being a result of voice-driven shopping sales on Amazon made using Alexa.
"Amazon could see higher than expected revenue growth rates over the next two years on stronger-than-anticipated unit sales growth,"said Mahaney, who maintains an Outperform rating and $900 stock price target on Amazon. Wall Street expects Amazon to see revenues of $165.3 billion and $199.2 billion in 2017 and 2018, respectively.
By 2020, Mahaney estimates that Amazon could have about 500 million active customers worldwide.
Shares of Amazon were up by 0.1% to $854.61 on Friday morning, and are up 14% year to date.
Part of what is driving any potential revenue upside from Alexa devices is that Amazon has seen a "dramatic" increase in brand awareness and in adoption/ownership of its Echo products, Mahaney said. In the past six months, consumer awareness of Alexa devices has risen to 77% from 33%, while in the same period, consumer ownership has risen to 13% from 5%. And about 62% of Alexa owners describe themselves as being extremely or very satisfied with the devices.
Alexa has carved out a strong portion of the voice assistant market thanks, in part, to the fact that it's open to third-party developers -- a capability that's become a key strength for Amazon, Mahaney added.
"Over time, we expect further proliferation of Alexa-enabled services, most of which will come from third parties -- there are already over 10,000 skills available on Alexa, up from only 135 in January 2016," Mahaney explained. Beyond voice-activated shopping, Alexa owners can check Fitbit (FIT) - Get Fitbit, Inc. Class A Report data, order a pizza from Domino's (DPZ) - Get Domino's Pizza, Inc. Report and order an Uber or Lyft, among many other tasks. By comparison, Alphabet's (GOOGL) - Get Alphabet Inc. Class A Report Google Home only has 80 skills enabled so far.
In a survey of Alexa users, the most popular skills being used were playing music, checking local weather and listening to the news, Mahaney said. Voice shopping appears to still be somewhat unfamiliar, he added.
"At a basic level, we see Alexa devices removing friction and increasing frequency for Amazon customers, and that is a win for Amazon," Mahaney noted.
As Amazon continues to add new skills, consumers have more reasons to use Alexa devices in and around their home.
"Utility grows as the skills and applications grow," said Ken Cassar, principal analyst at e-commerce analytics firm Slice Intelligence.
Amazon is also less likely to be concerned about how many Alexa devices have been sold, Cassar said. CEO Jeff Bezos is more interested in the size of the Echo platform, how many households are using Alexa devices and how heavily it's being used by consumers, he added. RBC data showed that more than 50% of Alexa owners are using the device on a daily basis.
The reason for this is that Amazon wants to "own" the Internet of Things market, as well as the voice-activated e-commerce market, Cassar explained.
"They're looking to establish a platform that gives them power to be at the center of the connected home," he said.
Currently, Amazon's top competitor in the voice assistant market is Alphabet'sGoogle Home. Although the device was only launched last October (the Echo launched in 2015), Mahaney said consumer awareness of the Google Home is "surprisingly high already," with 60% of survey respondents saying they had heard of the product.
Consumers are rapidly becoming aware of Google Home because of Google's general brand awareness, the substantial advertising that Google has done for it and likely some piggybacking off of the Echo's popularity, Mahaney said.
But both Google Home and Amazon's Alexa are also being pushed higher by a rise in consumer awareness of voice-controlled devices in general.
"I would argue we're now in a position with voice UI that is similar to where we were back in 1998 and 1999 with search," Cassar said, referring to when the internet saw a surge in the number of search engines available. "But it's very commerce-focused, which makes it an entirely different animal."