One Wall Street analyst has gone on to say that the Amazon would see significant increases in stock prices over the next couple of years, with the main driver behind this potential growth spurt coming from Amazon’s auxiliary businesses in the cloud, advertising, and third-party areas.
Jefferies analyst Brent Thill doubled down on his “buy” rating for Amazon shares as he expects the online retailer still has plenty of room to grow in its auxiliary business ventures. He went on to say that he expected the stock price to hit $3,000 in the next couple of years.
In a note that he and other Jefferies analysts wrote to their clients, they reiterated their current price target of Amazon at $2,300 per share, around 27 above today’s stock price of $1,828. While many wouldn’t expect a company of Amazon’s size to have such growth potential remaining, he and his team argued that investors were significantly underestimated growth opportunities in the company’s other business operations.
“Amazon has just scratched the surface in many of its existing markets and we do not believe they need to open new storefronts to achieve our valuation. We examined 6 of Amazon’s core businesses (AWS, core retail, [third party] seller services, advertising, grocery, and subscription) and applied mostly conservative / discounted multiples to each business,” wrote Thill. “We estimate conservatively these businesses will be on a combined ~$194B run rate by 2022 (vs. cons at $220B+), accounting for ~44% of total revenue, but 66% of Amazon’s value. We have high confidence these high-recurring revenue / high-margin businesses warrant higher multiples than the core business and expect investors to recognize their embedded value.”
Additionally, advertising and third-party seller services were all growing faster than the main core retail business Amazon is known for, in addition to being more profitable as well. At the same time, Thill didn’t include the potential impact of new businesses in areas such as healthcare, an industry worth around $3 that’s poised for technical disruption in the years to come. Amazon’s new technologies and auxiliary operations could see it grab a significant portion of this market.
Shares of Amazon have gone up by 21 percent so far in 2019 and are expected to continue surging throughout the rest of the year. Amazon was also indirectly in the news today as streaming giant Roku (NASDAQ: ROKU) dropped a report which said that Amazon was going to expand into the streaming landscape, putting more pressure on other providers in this market.
Amazon Company Profile
Amazon is among the world’s highest-grossing online retailers, with $233 billion in net sales and $408 billion in estimated global gross merchandise volume in 2018. Online product and digital media content sales accounted for 53% of net revenue in 2018, followed by commissions, related fulfillment and shipping fees, and other third-party seller services (18%), Amazon Web Services’ cloud compute, storage, database, and other offerings (11%), Prime membership fees and other subscription-based services (6%), product sales at Whole Foods and other physical store retail formats (7%), and advertising services and cobranded credit cards (4%). International segments constituted 32% of Amazon’s non-AWS sales in 2018, led by Germany, the United Kingdom, and Japan. – Warrior Trading News
