Amazon’s shift from a business-to-consumer model to higher-margin business-to-business services is one reason for Citi’s bullishness.
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Amazon.com has been one of the biggest winners in the pandemic era, as shoppers accelerate their adoption of online shopping, and companies shift more of their IT work to public cloud services like Amazon.com Web Services.
But the stock is oddly dead in the water. Amazon (ticker: AMZN) has appreciated just 3% since hitting the $3,200 level on July 10, a period in which the Nasdaq Composite rallied 30%. Year to date, Amazon shares have barely budged.
That’s despite spectacular first-quarter results. While this year’s lackluster showing is likely due, at least in part, to the surprise news that Jeff Bezos is stepping down as CEO in favor of AWS chief Andy Jassy, the bottom line is that fundamentals have never been stronger. It looks like an opportunity for investors.
Citi analyst Jason Bazinet late Tuesday reiterated his Outperform rating on Amazon shares, while upping his target price from $3,600 to $3,750, which would represent a gain of 13% from recent levels. He writes in a research note that Amazon remains his favorite internet stock, and offers a list of eight reasons the stay bullish on the stock.
They are:
- The e-commerce market is still mostly untapped. The U.S. e-commerce penetration rate sits at just 20%, “leaving ample room for growth.”
- Amazon is maintaining its market share in U.S. e-commerce, in the low 30% range.
- International growth potential: While 70% of Amazon revenue comes from the U.S., the company saw more dollar growth from international markets than the U.S. in 2020. Bazinet also notes that pretax earnings for international were positive last year for the first time since 2013.
- The company is shifting from a business-to-consumer model to higher-margin business-to-business services. Think fulfillment, delivery, and advertising—plus AWS.
- “Street estimates look reasonable,” Bazinet says, although he thinks models are overly optimistic about advertising. He notes that the Street sees revenue of $469 billion this year, $552 billion next year, and $636 billion in 2023.
- Wall Street analyst margin estimates “appear achievable,” especially as Covid-related costs fade.
- Returns on invested capital “remain healthy.”
- He thinks the stock is “less expensive than it has been in the last eight years.”
Amazon on Wednesday closed up 1.2%, to $3,308.64.
Write to Eric J. Savitz at [email protected]
