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Amazon (NASDAQ:AMZN) seems to be everyone's darling on Wall Street, as it was the second company to hit a trillion dollar market cap, but the investment firm Stifel seems to think there's as much as 27% more upward room in the stock, raising their price target substantially. While the company has been flirting with the trillion dollar market cap ever since last month and not ever closing above it, Stifel seems to think there is room to grow and today set a price target of $2,525 per share.
Amazon: Crazy Big, Rationally Acting
Stifel's Scott Devitt wrote a letter to investors, stating "Amazon is a leader in two large and rapidly growing markets, eCommerce and cloud services," continuing with "[t]he company is investing in a number of initiatives, including Prime, AWS, India, logistics, video content, and Alexa, which will limit the opportunity for near-term margin expansion." This sort of diversification got the attention of Stifel, who continued to pour on praise with "[w]e support where Amazon's investment dollars are focused as we believe this better positions the company for continued market share gains and opportunity for greater margin expansion once the company emerges from the current investment cycle," meaning they took a bit of a hit to expand current investments and pursue new ones, so they could be posturing to provide more margin in the medium to long-term.
Most of Amazon's latest momentum does seem to be coming from their cloud services and their continued aggressive acquisitions, and this seems to be continuing the pattern of growth over time. Now, they are making physical brick-and-mortar stores in major marketplaces, changing in ways that seem almost offputting but intelligent. While they are definitely in the process of disrupting markets, they are also in the process of jumping into other markets that can benefit them in the medium to long-term. Just yesterday, Amazon stated that it's Alexa Fund invested in Plant Prefab, a California company that uses construction processes derived from sustainable methods using environmentally friendly materials in an attempt to disrupt the home building market by making a faster home with fewer labor costs involved.
Obviously, Alexa is expanding into more homes and even now being built into some homes and clearly, this is part of Amazon's greater vision of complete consolidation, but with Amazon's ability to pretty much create or disrupt anything they want, their way of doing things has clearly altered the way nearly all tech companies do business daily. Keeping their competion on their toes has not only made them a solid buy for years, but has made some people very wealthy in the process.
Rational Buy - Lots of Variety Under One Ticker
The most daunting thing Amazon has to deal with would be Wal-Mart (NYSE:WMT) in the United States and Alibaba (NYSE:BABA) in China, and with their pattern of not establishing a clear pattern, they seem to have thrown off the trail of their competitors in some ways. As Wal-Mart announces in-store pickups, Amazon is now opening stores to sell 4+ star products. Jeff Bezos clearly has a vision that's wider than most, as well as clearer than lots of his competition. He's turned Amazon into something of a goliath of a company, making it the second largest company in the world, right behind Apple (NASDAQ:AAPL). Sure, there is competition around every corner that Bezos peeks his head around, but he most certainly has proven that he is capable of handling himself.
CFO Brian Olasvsky said back in July during a conference call that the primary drivers in growth for Amazon have been its high-margin businesses, like cloud services and advertising. In order to continue to be competitive though, margins were noticeably thinner on their retail side. "Amazon has a knack for building dominant businesses from scratch, literally out of thin air. They have a new business now in advertising ... that's going to be doing about $20 billion in revenue by 2020," Devitt stated on CNBC, contextualizing that with "[t]hat's $100 billion cap business in terms of market value alone on a business that is somewhat newly created."
Amazon can literally make markets with almost no problem, invade markets with nigh-infinite resources and completely dominate an industry in a matter of a few years. They did it with books, they did it with e-commerce in general, they've continued to show that they are a force to be reckoned with in the cloud services sector and now are diversifying across so many market segments as to make them far less susceptible to fluctuations across their balance sheet. It's not all green though, as we reported earlier this year, Amazon lost out to Walmart in the battle for India's Flipkart so there are definite headwinds in some business lines, however the big picture looks good. They are making it rather easy to just be a one-stop shop for even an investor, as their stock is continually beginning to cover more and more services under the single ticker. It's not as if Amazon won't be in the news within the next few days, so just stick around and we'll keep you informed!
