In a report published Wednesday, JMP Securities analyst Ronald V. Josey upgraded the rating on Amazon.com, Inc. (NASDAQ: AMZN) from Market Perform to Market Outperform, with a price target of $575. Despite the 58 percent year-to-date increase in share price, the analyst believes that there still is meaningful upside potential due to the improved transparency at AWS and opportunity for higher margin expansion.
The analyst believes that Amazon is a leader in the e-commerce segment with 37 percent share of the domestic market and a growing share of the international market. The company is also expected to see improved profitability due to the recent slowing of its investment cycle, while AWS is expected to grow its market share and profitability.
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"In addition, we believe AMZN is investing in and benefiting from some key growth drivers of the Internet going forward, including video with Amazon Prime Video; delivery, where 15 cities now have hourly delivery through Prime Now; and local, with Amazon Home Services, among other areas," Josey stated.
The company's focus on its Prime users, which the analyst believes could be about 40-50 million worldwide, offers a robust network effect, given that Prime users usually spend twice as much as non-Prime ones.
"Across Amazon's core eCommerce business, we are most focused on North America EGM, and we believe Prime membership is driving wallet share gains. We also note a potential tailwind in int'l EGM as Amazon laps the Japanese consumption tax in 2Q; Japan is Amazon's fourth largest market," Josey added.
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