Amazon.
com shares have been one of the year’s biggest stock stories, up
more than 41% for the year to date through Tuesday’s close, as consumers
shop more online and enterprises accelerate their adoption of cloud
computing, both in response to the Covid-19 pandemic and the associated
economic downturn.
The rally in Amazon (ticker:AMZN) has driven the company’s market cap to $1.3 trillion, trailing behind only
Apple
(AAPL) and
Microsoft
(MSFT). But the way Needham analyst Laura Martin sees it, there will be further gains ahead.
Maybe huge gains.
Martin initiated coverage of the company with a Buy rating and $3,200 price target on the stock. But she also makes the case that the stock could be worth as
much as $5,000 a share, a level at which the stock would be worth about
$2.5 trillion. (That would be roughly in line with the combined current
valuation of Apple and
Alphabet
(GOOGL).
Martin asserts that you can justify a $5,000 stock price based on
Amazon’s “track record of TAM-expanding [total addressable market]
decisions that elongate its growth runway, drive higher profitability
and lower shareholder risk via revenue-stream diversification.”
She is particularly excited about the growth of the company’s
subscription businesses—including Amazon Prime—and she also makes the
case that Amazon’s structure turns the businesses it enters into growth
machines. She thinks Amazon’s parts are worth a lot more together than
they would be apart.
Martin notes that Amazon over the last five years has grown its
services business to 43% of total sales from 28%. “Although investors
may think of Amazon as a company that sells products, the numbers
suggest that [it] is actually much more a services company that commands
much higher incremental ROIC [return on invested capital] than retailers, either offline or online. We calculate that Amazon’s
media businesses today are worth approximately $500 billion, or 38% of
Amazon’s total value.”
And she says that Amazon Web Services, the company’s cloud computing platform, is worth an additional $560 billion.
Martin spends many pages of her new report asserting that Amazon’s
parts are more valuable together than apart. “Amazon’s data superiority,
scale economics, and brand franchises generate incremental revenue for
any business owned by Amazon compared to what that business is worth
could generate as a stand-alone entity, we believe,” she writes.
She estimates that any business appended to Amazon’s core
e-commerce business is worth 1.5 times more than that same company would
be worth outside of Amazon’s umbrella. “By implication, sum-of-the
parts calculations based on public company comps meaningfully understate
Amazon’s value,” she writes.
On Wednesday, Amazon was up 1.1%, to $2,643.60.
