Amazon Stock: Can You Double Your Gains? This Analyst Thinks So
Analysts and investors have been gloomy about Amazon (AMZN) - Get Free Report ever since the company released weak guidance for the fourth quarter. Many have cut their price targets for AMZN in the near term — including Ivan Feinseth of Tigress Financial.
Feinseth lowered his price target on the stock from $232 to $192 per share.
Still, the new price target implies that there's a 93% upside potential with Amazon's stock.
In this article, the Amazon Maven will take a look at what Feinseth had to say about AMZN to see if the stock is really worth double its current price.
Figure 1: Amazon Stock: Can You Double Your Gains? This Analyst Thinks So
Dave Sanders for The New York Times
(Read more from Amazon Maven: Amazon (AMZN) Q3 Earnings: What the Analysts Are Saying)
(The Value of the Prime Membership Program) - Get Free Report
Tigress Financial's Ivan Feinseth wrote that he lowered his price target to account for adjustments to the stock's valuation and growth rate. But he still believes the Seattle-based e-commerce juggernaut is undervalued.
One of the reasons why he thinks there's still room for growth in AMZN is the company's Prime membership momentum.
There are two reasons to be bullish on Prime. First, the membership program increases Amazon's sales. According to research conducted by Bank of America in 2020, Prime members are four times more likely to shop on Amazon than non-Prime members.
Figure 2: Prime members in the US are spending more on Amazon.
According to Statista, the e-commerce industry is expected to nearly double in size within the next five years, growing from an estimated $905 billion in 2022 to $1.7 trillion in 2027.
Because an estimated 63% of U.S. households have Prime memberships, it's likely that Amazon will be able to dominate most of that expansion here in the U.S.
The second reason to be bullish on Prime is due to Amazon's pricing power over membership.
Recently, Amazon raised its annual fee for the service from $119 to $139.
The company hasn't disclosed how much revenue that price increase generated, nor how much was added to its bottom line. However, JPMorgan’s Doug Anmuth has estimated that the price hike could create an extra $3 billion for the company’s top line.
AWS: Amazon's Cash Cow
Ivan Feinseth also likes AMZN due to the company's most valuable asset: Amazon Web Services (AWS), the company's cloud-computing unit. So far, AWS has rescued Amazon's consolidated profit-and-loss statements.
Despite generating only 13% of Amazon's global revenue in 2021, AWS represented 74% of its entire operating income.
And the long-term perspectives for the company are very positive.
The cloud-computing market is poised for expansion: According to a Markets and Markets report, the industry is projected to grow from $545 billion in 2022 to $1.2 trillion by 2027.
If Amazon can hold onto its market share (currently one-third), investors should expect a considerable addition to the company's coffers.
Still, we must acknowledge that this so-far “inflation-proof” segment raised a red flag in the third quarter. AWS grew only 28%, slightly slower growth than in previous quarters. This has made analysts a little cautious about how this unit will perform in the upcoming quarters.
The Google Inside Amazon
And then there is Amazon’s advertising business, which might be the company’s next net income-generating Holy Grail.
Amazon doesn't report its advertising cost breakdown (it's buried within the company's e-commerce results). However, from looking at Alphabet (GOOGL) - Get Free Report and Meta (META) - Get Free Report, we know that advertising is a very profitable business.
So far, Amazon’s advertising arm has surpassed YouTube, generating $31 billion in revenue in 2021. And the good news is that the marketplace has been growing at a steady pace: In the third quarter, for instance, Amazon ad sales grew 30% year over year.
Amazon's Most Bullish Bull?
Wall Street is almost unanimously bullish on Amazon. No one disagrees that the e-commerce company is poised for growth in the long term.
However, the question is, by how much?
According to TipRanks, the average price target for Amazon stock is $140, which makes Ivan Feinseth one of the biggest Amazon bulls on Wall Street.
It's true the Tigress Financial analyst lowered his price target on the company after the third-quarter earnings conference. But he sees the recent sell-off as a "major" buying opportunity.
