Morgan Stanley on Monday presented a bull-case scenario for Amazon.com ( AMZN ) that sees the e-commerce leader nearly doubling to a market capitalization of $1 trillion and a share price of 2,000 by the end of 2018.
[ibd-display-video id=2632928 width=50 float=left autostart=true]Morgan Stanley analyst Brian Nowak used a “sum of the parts methodology” that looks out to 2022 for five segments of Amazon. Those parts are Amazon’s first- and third-party retail businesses; its cloud computing unit, Amazon Web Services; Prime membership subscriptions; and the general category of advertising/other.
“Amazon’s high-margin revenue disclosure speaks to the $1 trillion ($2,000/share) sum-of-parts bull case,” Nowak wrote in a note to clients Sunday.
“The valuations apply multiples based on what we view are appropriate peer groups, factoring in relative growth rates and margin profiles,” Nowak wrote. “We discount each segment back to year-end 2018 to arrive at a $2,000/share value or (about a) $1 trillion bull case.”
Amazon’s current market capitalization is near $546 billion. Amazon shares are up 1.2%, near 1,139 during afternoon trading in the stock market today . Nowak currently has an overweight rating on Amazon with a price target of 1,250.
Nowak estimates that Amazon’s first- and third-party core retail business will be worth $600 billion. Amazon Web Services will be worth $270 billion, with its Prime subscription revenue business worth $70 billion and Amazon’s ad business worth $55 billion.
IBD’S TAKE: Amazon is on the exclusive list of IBD Leaderboard stocks, which says the stock is holding near highs as it sits in buy range from a 1,083.41 buy point. The latest breakout was from a late-stage base .
Amazon shares hit a record high after reporting better-than-expected third-quarter results on Oct. 26 that smashed estimates and subsequently received multiple price-target hikes .
Amazon reported revenue of $43.7 billion, up 34% from the year-ago quarter and beating the consensus estimate of $42 billion. It reported adjusted earnings of 52 cents, smashing the consensus estimate of 1 cent, as polled by Zacks Investment Research.
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