Morgan Stanley Lifts Amazon Bull-Case Price Target To $2,100 On Ad Opportunity

Between its Web Services, Prime, video platform and brick-and-mortar plays, Amazon.com, Inc. AMZN has a lot of real estate.

And that well-trafficked property may be well-appraised by renters.

The Rating

Morgan Stanley analyst Brian Nowak maintained an Overweight rating on Amazon and raised the base-case price target from $1,250 to $1,400. Morgan Stanley's bull-case target increased from $2,000 to $2,100.

The Thesis

The analyst's bullishness is justified largely by Amazon’s advertising business, which he now values at $75 billion against a previous forecast of $50 billion. (See Nowak's track record here.) 

Morgan Stanley is betting on a larger-than-expected addressable market in trade spend from consumer packaged brands and manufacturers, amounting to $55 billion and driving 5-percent and 12-percent increases in 2018 and 2019 ad revenue estimates, respectively. Amazon could also tap into another $123 billion in U.S. trade spend over time, Nowak said. 

In the meantime, though, the ad boosts are seen to translate to a 54-percent compound annual growth rate for Amazon’s sponsored product revenue between 2016 and 2019.

Morgan Stanley accordingly raised its consolidated segment operating income estimates 1 percent for 2018 and 3 percent for 2019.

“To be clear, we don’t expect investment to let up, but rather we expect these high margin revenue streams to allow for larger investment and profits,” Nowak said. 

Price Action

At the time of publication, shares were set to open marginally higher around $1,389.46.

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