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Pivotal Still Sees Plenty Of Growth Opportunities At Amazon

Pivotal Still Sees Plenty Of Growth Opportunities At Amazon, Inc. (NASDAQ: AMZN) is more than just one of the world's largest retailers as it also operates one of the world's biggest software business and has exposure to a fast-growing and high-margin advertising business, according to Pivotal.

The Analyst

Pivotal Research Group's Brian Wieser initiated coverage of Amazon with a Buy rating and $1,920 year-end price target.

The Thesis

Amazon has grown to become a "massive" business yet at the same time it remains small compared to the size of the market size it targets, Wieser said in a note.

Recent estimates from Euromonitor suggests consumers across the world spent $45 trillion in 2018 and Amazon accounted for merely $420 billion worth of consumer-related activity, or less than 1 percent of the total addressable market. As a company whose mission is essentially sell "as many consume goods as possible," the company can continue growing its non-AWS businesses by 13 percent through 2023 and then 6 percent through 2030.

Amazon's AWS business is a "remarkable story" with an estimated more than $25 billion in revenue in 2018 from storage, computing, networking and other software sales, the analyst said. According to eGartner, estimates total global enterprise software spending was likely $405 billion in 2018 while other forms of IT spending was likely $3.7 trillion in 2018. The company ended the third quarter with $17.8 billion in revenue backlog with an average contract life of 3.5 years which was up from $12.4 billion in the first quarter.

Amazon's "Other" segment could show $10 billion in revenue in 2018, of which Wieser said advertising accounts for around $9 billion. The company's focus on advertising represents a new growth opportunity that is not directly tied to consumer spending trends and could rise to $33 billion by 2023.

Price Action

Shares of Amazon were trading higher by 1.6 percent to $1,600 early Monday morning.

Related Links:

Why An AWS Spin-Off Could Be Amazon's Best Strategic Move

RBC's Mahaney: Tech 'Reckoning' Already Occurred

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