Morgan Stanley: Amazon could be a $1 trillion company within a year

Jeff Bezos

Amazon may reach the $1 trillion market value milestone in the next year, according to a top Wall Street firm.

Morgan Stanley reiterated its overweight rating for Amazon shares, presenting a “bull case” 12-month price target of $2,000 per share or roughly a $1 trillion market cap.

“Amazon’s high margin [revenue] disclosure speaks to the $1trln ($2,000/sh) sum of parts bull case,” analyst Brian Nowak wrote in a note to clients Sunday entitled “The Math Behind the Trillion Dollar Bull Case.”

“Our sum of the parts methodology looks out to 2022 for the 5 various segments (1P, 3P, AWS, Subscription, and Advertising/Other) and applies multiples based on what we view are appropriate peer groups, factoring in relative growth rates and margin profiles. We discount each segment back to year-end 2018 to arrive at a $2,000/share value or ~$1 trillion bull case.”

Nowak shared his valuation methodology and key forecasts for each of Amazon’s businesses to reach the $2,000 share price target.

The analyst valued Amazon’s core retail business at $600 billion, estimating 13 percent annual sales growth for its e-commerce business in 2022 and a 5.5 percent operating profit margin that year. He also estimates its third-party marketplace business will achieve a 25 percent earnings before interest, tax, depreciation and amortization (EBITDA) profit margin in five years.

Nowak gives a $270 billion valuation for Amazon Web Services, the company’s cloud computing arm, forecasting 18 percent annual sales growth and a 50 percent EBITDA margin in year 2022. He also assigns a $70 billion value to the company’s growing subscription business and $55 billion for its advertising segment.

Even as he outlined the positive optimistic scenario, the analyst reiterated his $1,250 price target for Amazon shares, representing 11 percent upside to Friday’s close.

Amazon shares have rallied 50 percent year to date through Friday, compared with the S&P 500’s 15 percent return.

Here are the consumer industries Amazon will crush next: Bernstein

Amazon CEO Jeff Bezos.

The retail stock carnage will only get worse as Amazon continues to mow down certain corners of the sector, according to Bernstein.

“We are currently in the midst of a generational shift in consumer behavior and how companies bring their goods to market,” the firm’s analyst Ali Dibadj wrote in a note to clients Friday.

“The only thing one can be certain about is that things will change and companies will be disrupted, and when it comes to disruption there has never been a company quite like Amazon.”

The retail sector is having a rough year so far as the industry struggles under the Amazon onslaught.

The SPDR S&P Retail ETF’s declined 9 percent year to date through Friday compared to the S&P 500’s 15 percent gain and Amazon’s 50 percent surge in the same time period.

Dibadj shared his imminent Amazon disruption predictions for each consumer subsector:

1. Consumer packaged goods: “We think beverages/snacks companies will fare better than household & personal care companies, while packaged food companies are likely most at risk.”

2. Restaurants: “The benefits of a potential national delivery network through Amazon Restaurants outweighs the relatively modest risk presented by Amazon’s placing possible downward pressure on food prices (proteins appear more insulated).”

3. Transportation: “Structural volume growth in e-commerce will benefit the network carriers, and the significant hurdle posed by the costs of last mile delivery is likely to result in better pricing.”

4. Broadline retailers: “We think the scale of Walmart’s existing network of distribution centers, stores, and new pick-up points we expect … will allow them to adapt well to the higher costs, while smaller grocers will be more damaged.”

5. Specialty apparel retail: “We see the off-price retailers retaining their competitive advantage in apparel, for now.”

6. Healthcare services: “We think Amazon’s entry into pharmacy would be negative for independent pharmacies, somewhat negative for national pharmacies and distributors, and we increasingly see this as long term negative for” pharmacy benefit managers.

The analyst also explained how the internet and social media have generally hurt the power of traditional brands, further adding to the companies’ difficulties.

Amazon reportedly blames the U.S. Postal Service for Amazon Fresh issues

Amazon is blaming the U.S. Postal Service for having to shut down Fresh in some areas, Recode reports. Internally, sources told Recode that Amazon is saying USPS was responsible for making the deliveries in most of the affected areas.

As the story goes, Amazon is throwing shade at the USPS, telling food brands the USPS wasn’t reliable in delivering the food on time or at all, Recode reports. Amazon also reportedly told brands that the economics of the business were harder in those areas because they were not very densely populated.

Earlier this month, Amazon Fresh halted its services in parts of nine states nationwide. Amazon, however, declined to comment just how many neighborhoods were affected.

 

The shutdown came of Fresh in some parts of the country came a few months after Amazon bought Whole Foods for $13.7 billion, though, Amazon said what’s happening with Fresh is unrelated to the acquisition.

I’ve reached out to Amazon and will update this story if I hear back.

Amazon shares surge 13% to record above $1100 as Wall Street shocked by giant’s rapid growth

Wall Street is buzzing over Amazon’s impressive September quarter results.

Analysts say they are growing more confident Amazon’s success will continue because of its proven ability to invest in new opportunities.

The e-commerce juggernaut generated third-quarter earnings per share of 52 cents, handily beating the 3 cent Thomson Reuters consensus estimate.

Its shares hit a new all-time high Friday and closed up 13 percent after reporting the results after the closing bell Thursday. Around midday they rose above $1100 for the first time ever.

“Amazon reported better-than-expected revenue and operating income, driven by strong Prime Day signups,” wrote Credit Suisse analyst Stephen Ju in a note to clients on Friday. “And once again it demonstrated accelerating growth across all e-commerce reporting segments.”

The analyst said the strong growth was the result of the company’s massive investment spending. Amazon had $5.7 billion in capital expenditures during the third quarter, $300 million more than he expected.

Jeff Bezos

Amazon shares break above $1,100 for the first time  12:51 PM ET Fri, 27 Oct 2017 | 01:03

“We have always believed that Amazon continues to allocate capital as a function of consumer and enterprise demand for its services across e-commerce and AWS,” he wrote, referring to Amazon Web Services, the company’s web hosting operation. The third-quarter result “serves as the confirmation of the rationale for the investment cycle that began in 3Q16.”

Ju reaffirmed his outperform rating on the shares and raised his price target to $1,385 from $1,350. The new target is 42 percent higher than Thursday’s closing price.

Jefferies analyst Brent Thill said he believes Amazon’s big investments are driving growth for its Prime subscription services, which is then spurring stronger sales.

The Amazon “results reinforced again our long-standing thesis that investment in the assets behind AMZN’s competitive moats (fulfillment, digital content, AWS) continues to drive the Prime flywheel effect,” Thill wrote Friday. “Subscription rev growth accelerated in Q3 on strong Prime membership growth driven by above-expectations Prime Day results which also drove higher than expected results internationally.”

Thill reiterated his buy rating and raised his price target on Amazon shares to $1,350 from $1,250.

One analyst said he is optimistic that Amazon’s scale and track record will help it maintain strong growth rates. Third-quarter sales rose 34 percent from the same period last year, to $43.7 billion.

“Amazon is one of the highest quality companies in the internet sector considering its consistent innovation and execution, the size of the opportunities it is pursuing, and its positioning within those future growth opportunities,” Citi Research analyst Mark May wrote Friday. “We believe the company is positioned well relative to a number of growth vectors in the Internet sector and see upside to shares considering its compelling growth versus industry peers.”

Amazon has been one of the best-performing large-cap stocks in the market. Its shares rallied 30 percent this year through Thursday versus the S&P 500’s 14 percent gain.