Amazon's (AMZN) Q3 North America Media Market Performance was 'Weak' - Cowen

Cowen and Company comments on Amazon.com's (Nasdaq: AMZN) North American Media Market for Q314. The firm rates Amazon at Outperform with a price target of $325.

Analyst John Blackledge noted that media metrics for Amazon last quarter were "weak." The analyst comments:

Overall, we estimate Total N.A. Media eCommerce revenue generating only a 6% CAGR ’14-’19. AMZN has significant overall N.A. Media eCommerce market share at 22% and dominant share in Books at 69% (physical books sold/rented online and Ebooks), which is estimated to only grow at a 3% CAGR’14-’19. After breaking down AMZN’s Media segment into its constituent pieces (e.g. Books, Music, Home Video, Video Games, Software and Apps), our ’14-’19 North American Media segment estimated CAGR of 5.6% could have downside risk. N.A Media accounts for ~13% of AMZN’s revenue, WW Media accounts for 26% of total revenue.

AMZN Share Gains in N.A. Media Markets Could be Challenging

AMZN share gains could be difficult to achieve in Home Video and Music given lower device penetration than Apple and Google which curbs digital purchases/rentals as consumption shifts from Physical to Digital & Cloud offerings where AMZN does not maintain purchasing parity (vs. Physical sales); also nascent Cloud offerings are not monetizing currently. Our analysis suggests the largest growth opportunity is in Apps (24% CAGR ’14-‘19), but AMZN again lacks the device ecosystem scale of AAPL or GOOGL. Also, AMZN has no clear advantage in Video Games (9% share) and Consumer Software (8% share), in our view.

Net-Net: Modest Downside Risk Exists to Our LT Media Revenue Forecast

There exists potential downside risk to our N.A. Media segment forecasts. Our sensitivity analysis suggests long-term NA Media revenue growth of 4-5% and about $700MM in 2019 revenue at risk for every 1% of market share lost. While AMZN's growth engine today is EGM (~68% of total revenue), if Media growth continues to be challenged, it could put more stress on EGM and other growth initiatives.

For an analyst ratings summary and ratings history on Amazon.com click here. For more ratings news on Amazon.com click here.

Amazon.com closed at $335.64 yesterday.

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