Pivotal Still Sees Plenty Of Growth Opportunities At Amazon

Amazon.com, Inc. AMZN is more than just one of the world's largest retailers as it also operates one of the world's biggest software business and has exposure to a fast-growing and high-margin advertising business, according to Pivotal.

The Analyst

Pivotal Research Group's Brian Wieser initiated coverage of Amazon with a Buy rating and $1,920 year-end price target.

The Thesis

Amazon has grown to become a "massive" business yet at the same time it remains small compared to the size of the market size it targets, Wieser said in a note.

Recent estimates from Euromonitor suggests consumers across the world spent $45 trillion in 2018 and Amazon accounted for merely $420 billion worth of consumer-related activity, or less than 1 percent of the total addressable market. As a company whose mission is essentially sell "as many consume goods as possible," the company can continue growing its non-AWS businesses by 13 percent through 2023 and then 6 percent through 2030.

Amazon's AWS business is a "remarkable story" with an estimated more than $25 billion in revenue in 2018 from storage, computing, networking and other software sales, the analyst said. According to eGartner, estimates total global enterprise software spending was likely $405 billion in 2018 while other forms of IT spending was likely $3.7 trillion in 2018. The company ended the third quarter with $17.8 billion in revenue backlog with an average contract life of 3.5 years which was up from $12.4 billion in the first quarter.

Amazon's "Other" segment could show $10 billion in revenue in 2018, of which Wieser said advertising accounts for around $9 billion. The company's focus on advertising represents a new growth opportunity that is not directly tied to consumer spending trends and could rise to $33 billion by 2023.