This high-flying stock could benefit from increased advertising revenue.
This won’t come as a shocker, but Amazon (AMZN -0.20%) continues to make shareholders happy. The stock has been a massive winner since its IPO in May 1997. But Amazon’s impressive performance isn’t just (relatively) ancient history. Its shares have skyrocketed 45% over the last 12 months.
Will this momentum fizzle? Maybe not. Here’s why one Wall Street analyst thinks Amazon stock will soar another 30% over the next 12 months.
A top internet pick
Evercore ISI has been bullish about Amazon for a long time. The last time the investment bank downgraded the stock was in June 2015 from a “buy” to a “hold.” Two months later, the firm upgraded Amazon to a “buy” once again. In December 2017, Evercore rated the stock as an “outperform” and has stuck with that rating ever since.
Now, Evercore ISI is even more bullish about Amazon. Analyst Mark Mahaney recently increased the 12-month price target on the stock to $240 from $225. This target reflects an upside potential of roughly 30%.
Mahaney continues to view Amazon as his No. 1 internet pick among large-cap stocks. That’s saying a lot considering the players in this category.
He’s not the only fan of Amazon on Wall Street. Of the 47 analysts surveyed by LSEG in October, 43 rate the stock as a “buy” or “strong buy.” The average 12-month price target for Amazon is around $219. Although that’s lower than Mahaney’s price target, it’s still 19% above Amazon’s current share price.
Primetime
What might be surprising about Mahaney’s take on Amazon, though, is what area of the company he especially likes right now. The Evercore ISI analyst is upbeat about Amazon Prime Video.
Amazon CEO Andy Jassy maintained in the company’s second-quarter earnings call in August, “Prime Video continues to evolve into the best destination for streaming video.” He said that the movie The Idea of You attracted nearly 50 million viewers in the first two weeks after its release. The TV drama Fallout became Prime Video’s second most-watched original show ever.
Jassy also highlighted Prime Video’s growing sports content, noting the streaming service inked major deals with the NBA and the WNBA. What he didn’t mention, though, was that Prime Video has also increased the number of NFL games it shows as well has carrying the 2024 Professional Pickleball Association (PPA) World Championships.
Evercore ISI believes Amazon will be able to monetize advertising Prime Video more effectively than ever. Mahaney projects that the unit will generate revenue of $3 billion to $5.9 billion next year. This could boost Amazon’s total advertising revenue by as much as 9% year over year.
Advertising isn’t the only way Prime Video could help Amazon, though. Customers can pay $2.99 per month for an ad-free version. The video streaming service is also a big draw for Amazon Prime, a big moneymaker for Amazon.
Is Amazon stock a great pick right now?
Prime Video is only one growth driver for Amazon. An even bigger one is Amazon Web Services (AWS). It’s the industry-leading cloud services provider and accounted for 63% of Amazon’s operating income in Q2.
Artificial intelligence, especially generative AI, continues to provide a major tailwind for AWS. Amazon is capitalizing on this opportunity by introducing an array of AI tools and services on its cloud platform.
The company’s e-commerce platform still has room to grow as well. Amazon’s focus on automation and robotics should continue to boost profitability for the business.
This stock might look expensive with shares trading at 31.6 times forward earnings. However, earnings-based valuation metrics have always been less reliable with Amazon because of the company’s significant investments in growth.
I’m not sure if Amazon will deliver the 30% gain over the next 12 months that Evercore ISI predicts. But I agree with the consensus on Wall Street that the stock remains a great pick for long-term investors.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keith Speights has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
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