Amazon.com (AMZN) PT Lifted to $435 at RBC Capital

RBC Capital analyst Mark Mahaney reiterated an Outperform rating on Amazon.com (NASDAQ: AMZN) and boosted his price target to $435.00 (from $380.00) in the wake of new Same-Day Delivery (SDD) survey results and Prime Adoption analysis.

Mahaney issued three key updates on Amazon:

#1: Same-Day Delivery Starting To Deliver For AMZN - In May & August, Amazon announced a major expansion of its Same-Day Delivery offering -- expansions of cities (Atlanta, San Fran, LA, Dallas), products (1MM items+), and cut-off times (noon, 7 days a week). We view SDD, like Prime, as game-changing – increases customer satisfaction/loyalty AND competitors’ costs/challenges. We ran a survey of 4,700 U.S. Amazon users to test SDD’s traction. Key findings: 1. SDD Adoption Has Been Limited So Far – only 4% of AMZN customers have used SDD, tho 37% are aware of it; 2. SDD Customers Tend To Spend More – We estimate $700 in annual spend per SDD customer, 15% more than for non-SDD customers; 3. SDD Customers Tend To Shop More Frequently – We estimate 20 annual purchases per SDD customer, 25% more than for non-SDD customers; & 4. SDD Customers Plan To Spend More With AMZN – 34% of SDD customers plan to spend more in next year vs. 24% of non-SDD customers

#2: Prime Analysis Suggests A Prime Opportunity For Amazon – We believe the market is underestimating the revenue & profit potential associated with Amazon’s Prime Membership program and its recently implemented $20 price increase. AMZN added more Prime Subs in Q2:14 than it did in Q2:13, despite the price increase, suggesting Prime Pricing Power. And our survey work suggests that Prime adoption by Amazon U.S. customers may now be as high as 37%. We believe that there may currently be 40MM-50MM Prime Subs worldwide (double our prior estimate). The so-what here is that AMZN is on track to have 55MM-85MM Prime Subs worldwide by 2016, with the incremental very-high-margin revenue associated with that $20 price increase ranging from $1.1B to $1.7B. AMZN will surely invest part of this back into its biz, but this increases our conviction in AMZN’s margin recovery path…

#3: Forwarding Valuation Framework To 2016 – Our new $435 PT (increased from $380) is based on a balance of 33X our ’16E FCF of $6.3B, 1.6X our ‘16E Revenue of $132B, and 16X our ‘16E EBITDA of $11.4B. Our valuation frameworks suggest 35% upside. So does our historical forward Price/Sales multiple range analysis. That analysis suggests a downside floor of $280 (1.3X P/S – implying 15% downside) and an upside ceiling of $470 (2.2X P/S – 45% upside). This is an attractive 3-to-1 reward-risk ratio.

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 $325.00 yesterday.

You May Also Be Interested In

• Alpine Income Property Trust (PINE) PT Lowered to $18 at Jones Trading
• Synovus Financial (SNV) PT Lowered to $42 at Piper Sandler
• Piper Sandler Downgrades Magnolia Oil & Gas Corp. (MGY) to Neutral