Amazon is the world leader in e-commerce.

We have a Buy recommendation for Amazon stock with a target price of $ 3,851. The upside from current levels is 20.72% over a 12-month outlook.

• The undisputed leader of the e-commerce industry never ceases to show high growth rates, constantly developing and improving.
• Amazon(AMZN) is more than an online store. Other business segments are starting to play an increasingly significant role. High margins and leadership in their industries are what distinguishes Amazon subsidiaries.
• We are optimistic about the company’s near future and expect net profit to grow by 30–33% annually over the next three years.
• Negative net debt, as well as a high credit rating, allow us to speak about the safety of the company.
• Dependence on changes in the Labor Code, pressure from the “green,” and potential data leakage are the main risks associated with this company.

Brief description of the issuer

Amazon.com, incorporated on May 28, 1996, is the world’s largest e-commerce company headquartered in Seattle, Washington.

Even though most of Amazon’s revenue comes from online sales, you need to understand that the business is developing in several other areas. 

In addition, Amazon offers Amazon Prime a subscription that includes free shipping on various items, access to streaming movies and TV series, and a variety of other services.

Separately, it should the segment, the share in the total revenue growth for the fourth year already. is Amazon Web Services (AWS). AWS provides computing, storage, databases, and other services for startups, enterprises, government agencies, and academia. AWS products include Amazon Athena, Amazon CloudSearch, Amazon EMR, Amazon Elasticsearch Service, Amazon Kinesis, Amazon Managed Streaming for Apache Kafka, Amazon Redshift, Amazon QuickSight, AWS Data Pipeline, AWS Glue, and AWS Lake Formation. AWS solutions by machine learning service providers, the Internet of Things, serverless computing, and various enterprise applications.

Amazon also owns the world’s largest online audiobook retailer, Audible, the largest e-commerce platform in the Middle East – Souq, the world’s largest cinema site – IMDb, streaming platform – Twitch, supermarket chain Whole Foods, and many others. Amazon has over 40. Currently, the largest owners of the company are Jeffrey Bezos (14.02%), The Vanguard Group (6.44%), BlackRock (3.61%), State Street Global Advisors (3.17%), and T. Rowe Price Associates. (3.11%).

Attractiveness factors

The palm in e-commerce. Regardless of the weather outside the window, people will buy something. As the undisputed leader in e-commerce, Amazon is a trusted brand for quality. According to the company, about 197 million people around the world visit Amazon.com every month. Moreover, due to economies of scale, Amazon can sell goods and services cheaper than competitors, forcing the latter to sacrifice their margins.

The company’s slow but steady transition from the traditional online shopping segment to a more diversified business is visible to the naked eye. So, five years ago, the share of revenue in the AWS segment was 9%, today this figure has grown to 12%. At the same time, the role of the traditional Amazon online store, although it remains high, fell from 61% to 51%. Therefore, it is worth noting the leadership of the new segments of the company. 

Audible, Goodreads, Kindle, Twitch, Amazon Prime, AWS, and others are at the forefront of their respective industries, making Amazon a high-profile M&A player.

Big data. The leading resource of our time, except time, which Amazon also saves, is data. There is no doubt that Amazon, as one of the largest companies in the world and the most influential player in the e-commerce industry, knows a lot about consumer habits. This position is highly beneficial because having access to so much information, 

Amazon can create entirely new services based on artificial intelligence and big data that will give a new impetus to the company’s business. 

An example is Zoox, an Amazon subsidiary that manufactures self-driving cars. As you know, the more data an algorithm has, the more accurate and better it works.

Financial indicators and forecast values

Amazon’s growth rate is astounding. In three years, the company’s revenue has grown an average of almost 30% per year, and EBITDA has shown an average growth of 43% per year. With all of the above, we are optimistic about the future of Amazon. With an 84% YoY increase in net profit in 2020, our forecasts assume that this indicator will grow by 30–33% annually over the next three years.

The company has shown excellent results for the first quarter of 2021. Thus, earnings per share more than tripled y / y (from $ 5.01 to $ 15.79) and exceeded analysts’ expectations (forecast: $ 9.54), while revenue rose to $ 108.52 billion against the forecasted $ 104.47, thus showing an increase of 43.82% y / y. We should also highlight the AWS segment, which grew by 32% YoY. We also note that revenues outside North America grew 60% YoY, with growth in the US by 40% over the same period.

Risks

Amazon employs approximately 1,271,000 people. It is one of the largest employers in the world. Therefore, the slightest amendments to increase the minimum wage or any new laws to protect workers’ rights will significantly impact Amazon’s business.

Pressure from the Greens. Amazon’s supply chains are undergoing significant changes and require a lot of money to keep up with the green trend of the future. Moreover, the production of such a quantity of goods pollutes the environment. If a company fails to adapt to this trend, it risks losing credibility among today’s young investors, who are known to take sustainability seriously.

Potential data leak. Immense power is a big responsibility. It is a possible cyberattack that could cause significant damage to the company’s image. Amazon is one of the few companies with massive amounts of data. Thus, it acts as an attractive target for attackers.

Peer valuation at EV / EBITDA multiple of $ 3,851 for 12 months.

Thus, at the current price of $ 3,190, the upside potential for Amazon stock is 20.72%. Therefore, the recommendation is “Buy.”

The weighted average target price for a sample of analysts with the high historical performance of forecasts for this stock is, according to our calculations, $ 4,255 (upside – 28.71%), the stock rating is 4.44 (rating value 5.0 corresponds to the Strong Buy recommendation, and 1.0 – Strong Sell).

Including the estimate of the target price of Amazon shares by R5 CAPITAL analysts is $ 4,245 (recommendation – “Buy”), WELLS FARGO SECURITIES – $ 4,500 (“Buy”), EVERCORE ISI – $ 4,500 (“Buy”), CREDIT SUISSE – $ 4 000 (“Buy”), ATLANTIC EQUITIES – $ 4,000 (“Buy”), SOCIETE GENERALE – $ 4,000 (“Buy”).

Dynamics of Amazon shares

Below are the dynamics of the company’s shares, the S&P 500 index, and the US market retailer SPIRE index from May 2018 to May 2021. As you can see, Amazon shares jumped sharply after the drawdown associated with the pandemic outbreak. Thus, the popularity of e-commerce has grown markedly, as has the share price of the most significant player in this segment.

Technical analysis

From a technical point of view, you can see that Amazon shares have been trading reasonably comprehensive sideways since August 2020. Currently, the stochastic lines are in the oversold zone, which is an additional positive factor for buying. The resistance level is $ 3,546, and the support level is $ 2,882.