A Look at Amazon Stock and Rising Expectations

It seems nothing can slow Amazon (AMZN) down, as the company continues to hit it out of the park, and a growing number of analysts upwardly revise their outlook for the company.While a lot of pundits and commentators paused at the recent $3,000 price target assigned the company by Cowen analyst John Blackledge within a couple of years, it's not that hard to believe when you consider it has grown by 150 percent over the last three years, and 86 percent over the last couple of years. If it maintains its current pace, being up about 21 percent so far in 2019, it's not that difficult to believe it can grow by about 65 percent in total over the next two years or so.AWS leading the wayIt's not secret AWS is the main catalyst for revenue and earnings growth recently, and that segment of the company has a lot more room to grow, even as it appears it'll widen its lead over competitors.A recent survey by Cowen revealed that of more than 570 respondents to the survey, 42 percent of the existing customers of AWS anticipated increasing spending during the remainder of 2019. The rest of the cloud platforms had 35 percent of its existing customers say they would boost spending.When taking into account AWS represents a larger customer base, this is a significant number if it plays out that way. In the last quarter revenue generated from AWS was up 41 percent. That should increase on a quarterly basis through the remainder of 2019, and probably beyond.It's mind-boggling to think that if the valuation by Barrons concerning the AWS segment alone is now over $500 billion, its assumed growth rate means it'll surpass the value of most companies in the world, without taking into account its e-commerce and Other segments, of which the latter includes the fast-growing ad revenue unit.E-commerce unitWhen taking into account the value of the AWS and Advertising units, its core retail segment appears to be undervalued by the market. It believe this is one of the reasons why some analysts are very bullish on the company, even though some of the growth in that and other segments could start to slow down. By other segments I exclude AWS and Advertising, which will without a doubt maintain momentum for quite a while.The e-commerce unit, when adjusted for AWS and Advertising, is trading below the value of the multiple of sales physical retailers are valued at. That will certainly change going forward, and when combined with robust sales in its two major growth segments, could drive its value to the $3,000 mark, and possibly higher.Another thing that has potential is the decision to acquire the rights to The Lord of the Rings franchise. Obviously its e-commerce unit outperforms with its Amazon Prime customers, whom spend far more than non-Prime members, so if it's able to produce a quality TV series for the highly-engaged fan base, it could add a lot more long-term members to Amazon Prime, driving up...

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="It seems nothing can slow Amazon (AMZN) down, as the company continues to hit it out of the park, and a growing number of analysts upwardly revise their outlook for the company.” data-reactid=”11″>It seems nothing can slow Amazon (AMZN) down, as the company continues to hit it out of the park, and a growing number of analysts upwardly revise their outlook for the company.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="While a lot of pundits and commentators paused at the recent $3,000 price target assigned the company by Cowen analyst John Blackledge within a couple of years, it’s not that hard to believe when you consider it has grown by 150 percent over the last three years, and 86 percent over the last couple of years. If it maintains its current pace, being up about 21 percent so far in 2019, it’s not that difficult to believe it can grow by about 65 percent in total over the next two years or so.” data-reactid=”12″>While a lot of pundits and commentators paused at the recent $3,000 price target assigned the company by Cowen analyst John Blackledge within a couple of years, it’s not that hard to believe when you consider it has grown by 150 percent over the last three years, and 86 percent over the last couple of years. If it maintains its current pace, being up about 21 percent so far in 2019, it’s not that difficult to believe it can grow by about 65 percent in total over the next two years or so.

AWS leading the way

It’s not secret AWS is the main catalyst for revenue and earnings growth recently, and that segment of the company has a lot more room to grow, even as it appears it’ll widen its lead over competitors.

A recent survey by Cowen revealed that of more than 570 respondents to the survey, 42 percent of the existing customers of AWS anticipated increasing spending during the remainder of 2019. The rest of the cloud platforms had 35 percent of its existing customers say they would boost spending.

When taking into account AWS represents a larger customer base, this is a significant number if it plays out that way. In the last quarter revenue generated from AWS was up 41 percent. That should increase on a quarterly basis through the remainder of 2019, and probably beyond.

It’s mind-boggling to think that if the valuation by Barrons concerning the AWS segment alone is now over $500 billion, its assumed growth rate means it’ll surpass the value of most companies in the world, without taking into account its e-commerce and Other segments, of which the latter includes the fast-growing ad revenue unit.

E-commerce unit

When taking into account the value of the AWS and Advertising units, its core retail segment appears to be undervalued by the market. It believe this is one of the reasons why some analysts are very bullish on the company, even though some of the growth in that and other segments could start to slow down. By other segments I exclude AWS and Advertising, which will without a doubt maintain momentum for quite a while.

The e-commerce unit, when adjusted for AWS and Advertising, is trading below the value of the multiple of sales physical retailers are valued at. That will certainly change going forward, and when combined with robust sales in its two major growth segments, could drive its value to the $3,000 mark, and possibly higher.

Another thing that has potential is the decision to acquire the rights to The Lord of the Rings franchise. Obviously its e-commerce unit outperforms with its Amazon Prime customers, whom spend far more than non-Prime members, so if it’s able to produce a quality TV series for the highly-engaged fan base, it could add a lot more long-term members to Amazon Prime, driving up e-commerce sales on a more consistent basis.

Institutional ownership

Another element I haven’t seen included in discussions and analysis of Amazon is the relatively low percentage of institutional investors in the company, as measured against other FANGs.

For example, Facebook has 75 percent of its shares held by institutions; Netflix 77 percent; and Google 81 percent. Amazon on the other hand has a very low 57 percent of its shares held by institutions.

If its ongoing climb in value attracts more institutional investors, that will drive up its share price even more.

The one caveat there is if the explosive growth of the company hasn’t attracted institutional investors yet, it’s not a certainty it will now. The major difference to me as measured against the past, is Amazon has reduced risk with it highly successful units. In the past its e-commerce unit wasn’t able to deliver much in the way of earnings. The addition of AWS and ad sales has rapidly changed that.

I see Amazon as having a much bigger moat than it had in the past, and taking a significant stake in the company should do well for institutional investors.

Again, if they come in, it’ll be a positive catalyst that isn’t being priced in at this time.

Conclusion

I believe the performance of AWS, and probably its ad business is fairly accurately priced into the company. So if its e-commerce business is judged to be undervalued, institutional investors take a larger stake in Amazon, and it continues to deliver solid earnings improvement on a steady basis, Amazon should be able to give a legitimate run at the $3,000 mark within a couple of years, or maybe in about 30 months.

Even though it accounts for almost 50 percent of all e-commerce sales in the U.S., it has a lot of room to improve on that, and it shouldn’t run into trouble with anti-trust issues because when taking retail as a whole – including physical and e-commerce retail, it has a long way to go before it would be considered a monopoly, if it ever is.

For investors looking for a safe opportunity to grow their wealth over the next two to three years, Amazon is one of the more likely ways to do it.

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