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Needham Bullish on Amazon, Sees Stock Possibly Worth up to $5,000 Over Long-Term

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Needham believes that adding groceries, video and other services to Prime keeps subscribers in Amazon’s ecosystem three extra years.

Needham analyst Laura Martin initiated coverage of Amazon.com (AMZN) with a Buy rating and a $3,200 price target. However, the analyst estimates that the company could be worth between $4,500 and $5,000 per share over the long-term.

‘HIDDEN VALUE MULTIPLIER’: 

Needham analyst Laura Martin initiated coverage of Amazon.com with a Buy rating and a $3,200 price target. However, the analyst told investors in a research note that she estimates that the company could be worth between $4,500 and $5,000 per share over the long-term. Her “hidden value multiplier” investment thesis is based on Amazon’s track record of elongating its growth runway by adding new market adjacencies with “enormous” total addressable markets that weren’t visible three to five years prior to the investments. The profitability of its higher margin new businesses is masked by “Areas of Investment,” which Amazon has a proven track record of turning into valuable businesses, the analyst contended.

Additionally, Martin highlighted that Amazon is a services company. Over the past five years, Amazon’s Net Services Sales have grown from 28% of the company’s total sales to 43%, she pointed out, adding that Net Services Sales have a 19% operating margin compared with 3% for Amazon’s Product Sales. She calculates that Amazon’s media businesses today are worth approximately $500B, or 38% of the company’s total value, plus AWS is worth an additional $560B. Further, the analyst argued that adding groceries, video, Twitch, music, etc. to Prime keeps subscribers in Amazon’s ecosystem three extra years and grows LTV by 50%.

DIGITAL COMMERCE STRENGTH: 

Earlier this month, Wells Fargo analyst Brian Fitzgerald raised the firm’s price target on Amazon.com to $3,000 from $2,725, while keeping an Overweight rating on the shares. His review of omnichannel retailer commentary and eBay’s (EBAY) upward second quarter guidance revision indicate to him continued strength, if not acceleration, in digital commerce from March into April and May, despite brick-and-mortar retailers beginning to reopen across much of the country. While it is too early to tell whether e-commerce penetration will permanently “ratchet” higher, strong digital demand appears likely to persist over at least the near- to mid-term, he contended. Overall, the analyst expects Amazon to benefit from exceptionally strong e-commerce demand in the second quarter, likely extending into the second half of 2020.

PRICE ACTION: 

In afternoon trading, shares of Amazon have gained over 1% to $2,644.747.

Originally Posted on June 17, 2020 – Needham Bullish on Amazon, Sees Stock Possibly Worth up to $5,000 Over Long-Term

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