Amazon reported third-quarter revenue and earnings Thursday that came in well ahead of consensus estimates, and analysts remain bullish on the e-commerce stock going into the holiday quarter.
Amazon Analysts On Prime, Sales Trends: Amazon.com Inc AMZN had strong sales growth for several product categories including hard lines, consumables, soft lines and media, Raymond James analyst Aaron Kessler said in a note.
Prime member engagement was strong, with members shopping more frequently and across more categories.
Kessler has an Outperform on Amazon with a $3,500 price target.
Needham analyst Laura Martin views Amazon as “the catalyst for an earlier holiday shopping season this year, starting with Prime Day on Oct 13-14th.”
Martin, who has a Buy rating on Amazon with a $3,700 price target, said the fourth quarter is off to a strong start, with third-party sellers seeing 60% higher sales year-over-year for the two days of Prime Day.
Amazon Adverting Takeaways: The advertising segment for Amazon is represented in its "other" segment and was a highlight in many analyst updates Friday.
“Ad revenue grew to nearly $5B in 3Q20, suggesting AMZN is hiding a business worth about $500B in the public markets in its other sales line,” said Martin.
KeyBanc analyst Edward Yruma called advertising a “key driver of profitability” for Amazon.
“Amazon has turned that traffic (AWS) into valuable real estate for advertisers, and in turn, had strong advertising performance in 3Q,” the analyst said.
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Analysts On AWS: AWS customer usage was strong and Amazon saw “companies meaningfully growing their plans to move to AWS,” y Kessler said.
KeyBanc's Yruma said year-over-year AWS growth in absolute dollars "was the largest the company has seen, and operating margin expanded by over 500 bps."
Amazon's Valuation: Amazon has “several hidden value multipliers that suggest it is worth between $4,500 and $5,000 a share," Martin said.
The company has $600 billion of media asset value, the analyst said.
“We believe that services segment revenue and margins (including advertising and subscription) are growing faster than Amazon’s ecommerce assets, which implies valuation multiple expansion over time.”
Yruma has a $3,500 price target on Amazon and breaks it down as follows: $1,200 for North American retail (excluding advertising), $525 for international retail (excluding advertising), $1,275 for AWS and $480 for advertising.
What’s Next: Emarketer estimates online sales in the U.S. will grow 32% in 2020.
Amazon will be a “market share gainer within a growing pie,” Martin said.
“Amazon has an outstanding 15-year track record of turning its growth investments into new businesses with high ROIs, such as AWS and advertising.”
AMZN Price Action: Amazon shares lost 5.45% in Friday's session, closing at $3,036.15.
Photo courtesy of Amazon.
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