Bernstein Sets New Street High PT On Amazon At $600

In a report published Thursday, Bernstein analysts maintained their Outperform rating on Amazon.com, Inc. AMZN, while raising the price target from $450 to $600. The analysts believe that the market continues to underestimate AWS' potential and value, as well as the long-term profitability and size of the retail division. AWS witnessed accelerating revenues over the past three consecutive quarters, with 49 percent, year on year, revenue growth in 1Q15, from 43 percent in 2Q14. The analysts expect AWS' revenues to continue to grow over the next few quarters, with 70-80 percent growth expected in 2Q15 alone. "[W]e were surprised by AWS's current profitability trajectory, as our assumption had been that Amazon was investing more in sales and in R&D to drive AWS's current hyper-growth. The fact that Amazon has not had to invest as heavily as we had thought in R&D and in sales to support AWS's current high growth rate is indicative of the strength of demand by enterprises, governments, educational institutions, and small businesses," the analysts said. The AWS business appears to have more pricing power than Bernstein has earlier anticipated, given that the company has started to slow down the pace of price cuts to a considerable degree over the past 12 months, despite discounts being offered by competitors. According to Bernstein, "This price discipline coupled with declining costs for computing and storage explain in part the fast margin expansion we have seen for AWS starting in 2Q15."