Amazon (AMZN) Worth Up to $660/Share on SOTP Basis, RBC Capital Says

RBC Capital analyst Mark Mahaney provided an update on his long-thesis on Amazon.com (NASDAQ: AMZN) in a report to clients earlier today. The analyst highlighted the company's India opportunity and said the stock could be worth up to $660/share on a SOTP basis. The analyst maintained an Outperform rating and price target of $410.00.

Mahaney noted four key updates:

1. AMZN’s India Opportunity - Our broad Macro, Market & Competitive analyses of the India Online Retail sector generate four key points: a) India has become a significant market focus for Amazon, given its announced $2B investment and the fact that India is on track to be AMZN’s fastest market to $1B in GMV); b) Amazon has already established a relatively sizeable presence in that market -- Amazon.in is the #8 Website in India with 8 Fulfillment Centers; c) the India Online Retail market has the potential to be an $18B market by 2018; & d) Amazon is reasonably well positioned in India competitively and should be able to generate material contributions within 5-10 years, potentially $3B in GMV, $525MM in Net Revenue, and $475MM in incremental Gross Profit by 2018.
2. RBC’s Quarterly Cloud Pricing Survey - Based on our proprietary survey, AWS remains the sector price leader (as in lowest prices). Further, pricing actions in the public cloud space over the last three months amongst most major public cloud providers have been tame (see our separate sector note). We view this as a positive for AMZN, and would note that the very steep industry price cuts that occurred in H1:14 are one of the reasons that AMZN faces easing comps in 2015. For context, we are modeling 49% Y/Y growth in North America Other revenue (which contains AWS revenue) in 2015 vs. 45% Y/Y growth in 2014. Based on our survey work, we have increased confidence in this growth outlook
3. AMZN’s Long-Term Retail EPS Opportunity - Based on our bottoms-up EPS scenario analysis, we believe that AMZN’s Retail Segment (its core business, excluding AWS) has the potential to generate $22 to $38 in annual EPS power within 10 years. Specifically, we believe that Amazon can sustain an Active Customer CAGR of 8%-10% and a Revenue Per Customer CAGR of 3%-4%, while generating 7%-9% CSOI margins. Given the multiples that somewhat mature, leading consumer stocks currently carry, we believe this implies the potential for a materially higher AMZN stock price over time, based solely on the value of its Retail segment
4. An SOP Approach To AMZN - On a SOP basis, valuing separately Amazon’s three segments (North American Retail, International Retail, and AWS) on 2016 estimates, we see a very broad potential valuation range of between $350 and $660. From today’s price level, this would imply approx. 10% downside and 70% upside. We would view this as a very favorable, asymmetrical risk-reward outlook for AMZN shares

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

Shares of Amazon.com closed at $375.11 yesterday.

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