Needham Cites Amazon's 'Established Dominance,' Upgrades To Buy With $1,100 Price Target

Needham's Kerry Rice turned bullish on Amazon.com, Inc. AMZN and upgraded the stock's rating from Hold to Buy with a newly established $1,100 price target.

According to Rice, Amazon's "established dominance" in the U.S. market is expected to be sustainable given the popularity of Prime, a growing penetration in mobile devices and third-party growth. Specifically, Amazon accounts for approximately $1 out of every $3 spent online and the company's year-over-year revenue growth rate of 30 percent is double the industry average of 15 percent, which implies the company could expand its U.S. market share by 16 percent over the next five years.

Strength Of Prime

Rice noted that Amazon now boasts approximately 65 million Prime members in the U.S. in 2016, up from 40 million in 2015 and just 27 million in 2014. Based on household data, this implies nearly half of all U.S. households have access to a Prime membership today which is also up notably from 5 percent in 2011.

Prime members also happen to be "highly engaged" and spend on average $1,200 to $1,500, which is more than double non-Prime members that spend around $500 to $600. The conversion rate for Prime members is 74 percent, which is about five times more than non-Prime members at 13 percent.

Mobile Positioning & 3P

Rice believes Amazon is better positioned than its competitors to capture share among mobile users. In fact, the company's mobile app already has the highest consumer penetration rate as 76 percent of Amazon's users have the app installed on their phone versus just 33 percent for Walmart's app and 27 percent for eBay Inc EBAY.

Rice noted third-party (3P) sellers account for the majority of Amazon's GMV (gross merchandise volume) and is growing at a faster rate compared to Amazon's first-party (1p) business.

Amazon doesn't break out specific 3P metrics, but it did confirm there are over 100,000 sellers on the platform who generate over $100,000 in sales as of March 2017. This compares to just 70,000 sellers who generate $100,000 in sales a year ago.

The analyst said Amazon's AWS segment will also continue to be a key driver of its bottom line growth over the years.

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