Amazon Initiated Buy at Needham on Growth and Profitability

Needham initiated coverage of Amazon at buy with a $3,200 price target, based on its growth outlook and profitability.
Publish date:  (AMZN) - Get Report shares rose after Needham analysts led by Laura Martin initiated coverage of the online-retail and tech giant with a buy rating and a share-price target of $3,200.

They cited the Seattle company’s growth prospects and its profitability.

“We calculate that AMZN is worth between $4,500 and $5,000 a share long term,” the analysts wrote in a commentary.

That would be $5,000 a share “based on AMZN's track record of [total-addressable-market]-expanding decisions that elongate its growth runway, drive higher profitability, and lower" risk for shareholders by diversifying its revenue stream, the analysts said.

The long-term valuation would be $4,500 a share “based on services now at 43% of sales at a 19% operating contribution, dwarfing profits from e-commerce,” the commentary stated.

Amazon’s media assets are valued at about $500 billion, “nearly as valuable as” Amazon’s Web Services, which includes its cloud platform.

And the company has a long-term valuation of $4,500 a share “based on ecosystem value, as adding groceries, video, Twitch, music, etc. to the Prime service keeps subscribers in AMZN's ecosystem three extra years and grows [customer lifetime value] by 50%."

Morningstar analyst R.J. Hottovy likes Amazon, too. “The company continues to find ways to evolve its business model,” he wrote in a commentary.

“Its operational efficiency, network effect, and a brand intangible asset give its marketplaces sustainable competitive advantages that few, if any, traditional retailers can match.”

Amazon shares recently traded at $2,644.15, up 1.1%. The stock has jumped 55% over the past three months, compared with 29% for the S&P 500.

The $3,200 price target indicates 22% potential upside from Tuesday's closing price.