RBC Remains Bullish On Amazon Due To 'Growth Curve Initiatives'

Amazon.com, Inc. AMZN comes with some investment risk but bears may be ignoring the multiple "Growth Curve Initiatives" under Amazon's umbrella, according to RBC.

The Analyst

RBC Capital Markets analyst Mark Mahaney maintains an Outperform rating on Amazon with a price target lifted from $2,250 to $2,600.

The Thesis

A "Growth Curve Initiative" consists of either a new revenue opportunity or generating higher revenue through optimizations, Mahaney said. In Amazon's case, the company faces a new revenue stream from advertisements or the prospect of higher sales as the company successful shifts to one-day shipping guarantees.

In fact, Amazon's one-day shipping guarantee is a key initiative to spur growth as the majority of consumers surveyed by RBC cite delivery speed and convenience as two of three most important considerations.

Mahaney said Amazon is already showing signs of success in its one-day shipping as Core North America Retail revenue growth (excluding physical stores) accelerated in the second quarter. The last time the company showed an acceleration in growth was in the first quarter of 2018.

Growth did come at a cost as second-quarter operating income fell short of expectations and NA Retail Operating Margin contracted year-over-year for the first time since the third quarter of 2017. Margins could continue contracting as Amazon invests in one-day delivery features although this could create a "flywheel" opportunity.

"One-Day will make Prime more appealing for consumers, which will make FBA [Fulfilled By Amazon] more appealing for vendors, which will increase supply on Prime, which will make Prime more appealing for consumers," the analyst wrote in the note.

Price Action

Shares of Amazon traded higher by 1.1% Tuesday at $1,797.32

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