Why This Analyst Thinks Amazon Has a Minimum 50% Upside


Of all the tech companies currently trading on the market, Amazon is considered by most analysts as having the greatest room for growth.

While it’s surprising for a company that’s so large, with a market cap of around $900 billion, to be able to double in the next handful of years, that’s exactly what one analyst says will happen.

Michael Levine, an analyst at Pivotal Research, began covering Amazon on Wednesday, issuing a “buy” rating and putting the minimum target price on the company at $2,750 per share.

Currently, that’s over 50 percent higher than what the stock is trading at. That figure is also well above what most other analysts have as their target prices, with the average on FactSet sitting at $2,229.

Being bullish on Amazon isn’t really controversial, as all 46 analysts that are covering the company have a “buy” rating on the stock. What they don’t agree on, however, is the extent to which Amazon’s stock will go up in the future.

Amazon’s advertising business is expected to shoot up to $33 billion in revenue by 2022 and is often cited as the main reason why the stock is poised to surge.

However, Levine’s opinion doesn’t come from Amazon’s advertising business. Instead, he argues that the core, consumer offerings can see significant growth. Unlike other analysts, however, he doesn’t see Amazon’s advertising business as the golden goose they think it is, saying instead that it’s more of a complement to their existing retail operations. Most analysts take the opposite approach, thinking that the retail side of Amazon’s business has reached it’s peak.

 “There is an inherent tension between using more website real estate for advertising versus using it to drive more important long-term initiatives such as Echo devices, Prime usage, etc. that enhance the customer experience and value proposition for Amazon users. Amazon has been in the advertising business for well over a decade, and there are likely very good reasons why they have not ramped up faster,” wrote Levine. “To us the Amazon story is about Amazon Web Services duration and profitability, the ability to keep disrupting retail—even more so with one-day shipping, [and] expansion into logistics, drugstores, and grocery.”

Shares of Amazon didn’t move much today, as is normal for such a large company’s stock. Over the past month, Amazon’s stock has fallen by around $100 – or around 4 percent, but over the past six months, prices have been increasing modestly and steadily.

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 (GMV) 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