- Should you buy Amazon.com, Inc. (NASDAQ: AMZN) now? Here is some information to help you decide.
Shares of Amazon.com, Inc. (NASDAQ: AMZN) have been hitting all-time highs recently. The stock price hit $2,722.35 earlier this month and it closed at $2,670 on Friday.
$5,000 In The Long-Term
Needham analyst Laura Martin published a report saying that Amazon should hit $3,200 in the short-term as part of a 12-month target.
And from there, Martin said that Amazon stock could hit up to $5,000 per share based on the company’s hidden value multiplier.
Martin said she is bullish on Amazon’s stock due to its total addressable market expanding decisions. These decisions include Amazon’s ability to elongate its growth runway and drive higher profitability. Plus the company offers lower shareholder risk through revenue-stream diversification. And with the COVID-19 pandemic, it has accelerated the consumer adoption of Amazon products and services for the long-term.
In terms of the total addressable market expansion multiplier, Amazon has a history of expanding its growth runway by adding adjacent market offerings with sizable total addressable markets that were not visible about 3-5 years prior to those investments. For example, Amazon Alexa devices have a stronger track record of driving higher profits.
Over the past decade, Amazon has been expanding into a services company especially with the surge of Amazon Web Services — which is now 43% of the company’s revenue and accounts for 19% of operating margins. Needham believes that AWS as a separate operation is worth $560 billion if it were a standalone unit.
Needham also said that the addition of media businesses like Twitch and Amazon Music keeps users in the Amazon ecosystem for several extra years and increases the lifetime value of each user at $3,437. Needham also said that Twitch is the most undervalued asset at Amazon since it extends the company’s reach into the next-generation of buyers.
Needham also pointed out that Amazon’s scale economics and brand franchises generate additional revenue for any business owned by Amazon compared to what the business can generate as a standalone entity.
“Amazon’s ecosystem essentially draws customers in and leads them to spend more money in other areas of the business,” wrote Needham in the report via Business Insider. “We estimate that any business appended to Amazon’s core e-commerce business is worth 1.5x more than that company would be worth outside the Amazon umbrella. By implication, sum-of-the-parts calculations based on public company comps meaningfully understate Amazon’s value.”
In late April, Amazon reported its first-quarter earnings. The company’s revenue for the quarter was $75.45 billion, of which AWS accounted for $10.22 billion. And earnings per share (EPS) was $5.01.
During the earnings call, Amazon’s executives warned that it would be spending all of the profits from the second quarter in response to the coronavirus pandemic. This includes testing for its workers and increased spending on deliveries to get essential packages to customers.
“If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small,” said Amazon in the earnings press release. “Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances.”
A portion of the $4 billion will also be used for higher wages, PPE, and implementing better cleaning processes for the company’s facilities.
Amazon.com, Inc. (NASDAQ: AMZN) Stock Performance as of 06/21/2020:
1 day: Up about 0.79%
5 day: Up about 5.1%
1 month: Up about 10.3%
3 month: Up about 39%
6 month: Up about 49.9%
YTD: Up about 44.8%
1 year: Up about 40.7%
2 year: Up about 55.2%
5 year: Up about 508.8%
Max (since IPO): Up about 14,638.9%
Should You Buy Amazon.com, Inc. (NASDAQ: AMZN) Now?
Personally, I’m bullish on Amazon.com, Inc. (NASDAQ: AMZN) for the long-term. And based on the reports I have been reading, 92% of analysts are saying buy, 6% of analysts are saying hold, and 2% are saying sell. In another report, I am seeing that 14 analysts are saying strong buy, 7 are saying buy, 18 are neutral, 2 say sell, and 0 say strong sell.
Some of you might say that Amazon stock is too expensive for their portfolios and can be very risky for smaller portfolios. My suggestion is to buy fractions of Amazon share in that case. Fractional shares should be available on certain stock trading platforms depending on the one that you use.
Disclosure: I own a small number of Amazon.com, Inc. (NASDAQ: AMZN) shares. I wrote this article myself and I do not have any business relationship with any company whose stock I write about. I am not a financial advisor and all articles are my opinion. You should do your own due diligence and consider talking to a financial professional before investing.