Investment firm Bernstein in an updated research note out today , maintained an outperform rating and a price target of $675 for Amazon.com, Inc. (NASDAQ:AMZN) based on its outlook for the company’s premium Prime service. Despite several doubts by investors related to the company’s capabilities, the research firm is still confident in its thesis which it outlined in the note.
Investors in general have doubted Amazon’s ability to penetrate markets outside the US particularly with regards to its Prime service. This is evident from the comparison of international Electronics and General Merchandise (EGM) revenue growth with that of North America, which shows that the international revenue growth is much lower.
Another common view among the investors that create doubt regarding company prospects is that Amazon’s international competitors can easily copy the company’s offer of guaranteed fast shipping. Stakeholders believe distances are shorter and population densities are higher in other countries as compared to US which makes it easy for the competitors.
Bernstein however, is firm on its opinion and has come up with solid reasons to back up its view. The research firm believes that the International EGM sales are accelerating and so there are increased chances for Amazon to outperform. It points out the figures for the e-commerce giant showing a 31% International EGM revenue growth year-over-year (YoY) on neutral basis and 21% YoY in the previous quarter.
The research firm admits that the international revenue growth rate lags behind from that of North America but it believe that this is mainly because of lower Prime eligible Stock Keeping Units (SKUs) internationally. It backs up its opinion by stating the revenue figures of three major international players that includes Germany, UK, and Japan. In 2014, these countries contributed revenues of $11.9 billion, $8.3 billion, and $7.9 billion, respectively. This accounted for 34% of the total retail revenues for the company.
As for the investor concern about the increasing competition, Bernstein did a research in all of the major international regions. It concluded that the company’s proposition is unique and unmatched in both, The US as well as the major international markets.
For UK, Amazon Prime’s next-day free shipping offer is distinctive among all competitors. Premium delivery is commonly available but it costs more.
In Germany too, the analysis shows that the Prime’s next-day and two-day free shipping offer is matchless. The terms offered by Amazon are quite unique and much better than its competitors.
In Japan, the offer of unlimited free guaranteed delivery within three business days is still unique. No competitors have developed a loyalty scheme and so they all lag behind by great margin.
The price target by Bernstein is based on a multiple of 2016 EBITDA projections. The risks involved with this judgment include global economic conditions, cyber-security, global competition, and failure to grow AWS or third party programs.
Amazon’s current stock price is $524.25 and is going quite well compared to both NASDAQ and S&P 500. Revenues have been increasing and EBITDA is expected to grow significantly and reach to 69.7% YoY by end 2015 as compared to 24.9% in 2014. Earnings per share (EPS) is also expected to improve from negative to positive.
