Amazon Stock Forecast: Why I Still Have A $3,700 Price Target For Amazon

The Amazon stock forecast was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

  • Amazon’s Q2 report on July 30 did not beat Wall Street’s revenue estimate. The stock price dropped by -7.57%.
  • Q2 revenue was actually impressive at $113.1 billion (+27% Y/Y). This is lower just $2 billion lower than Wall Street average expectation of $115 billion.
  • Let us focus more on the EPS beat. Wall Street expected only $12.22 but Amazon’s Q2 EPS was $15.22. Amazon is apparently prioritizing net income margin now.
  • The Alpha, Beta, Delta variants are forcing even vaccinated people to again stay at home and do more online shopping, online gaming, and online streaming.
  • Amazon Web Services’ Q2 revenue was $14.81 billion, up +37% Y/Y.

Let us try to profit from the beat-down that Amazon’s (AMZN) stock received after its July 30 Q2 earnings report. AMZN’s price dropped by more than 7% because Amazon’s Q2 revenue of $113.1 billion (+27% Y/Y) was below Wall Street’s average estimate of $115 billion. Investors got scared that the pandemic tailwind is allegedly evaporating for Amazon’s e-commerce business. This big beatdown is amusing because earlier this month, investors pushed AMZN to a new 52-week high of $3,772.08.

My takeaway is that the -7.57% drop in AMZN’s stock price should be exploited. Let us give weight more to Amazon’s Q2 EPS of $15.12, which is notably higher than Wall Street’s estimate of $12.22. AMZN is a buy because this is the 4h consecutive quarter that Amazon is sequentially higher quarterly EPS.

(Source: Seeking Alpha)

The beatdown of AMZN was that many investors did not like the Online Stores segment’s revenue was only $53.1 billion. It was below Wall Street’s estimate of $56.71 billion. This underperformance was because the Q2 period was when North America and European leaders allowed its majority of vaccinated citizens to go out and do retail shopping again. Amazon’s online marketplace obviously suffers when people are again doing traditional retail shopping with their family members and friends. On the other hand, quarterly revenue of $53.1 billion for the Online Stores segment is already pretty impressive. Amazon is still on track to wrap up 2021 with more than $225 billion in annual revenue from its Online Stores segment. 

(Source: Statista)

Amazon Stock Forecast: Focus More On AWS Revenue Performance

It is true that Online Stores are the biggest revenue generator of Amazon. However, we should focus more on Amazon’s most profitable segment, Amazon Web Services or AWS. The rapid growth rate of AWS’s quarterly revenue is why AMZN trades at high valuation ratios. AWS’ Q1 2014 revenue was only $1.05 billion. Compare this to Q2 2021’s $14.81 billion and AWS touts a 7-year annualized quarterly revenue CAGR of 45.95%! We should put higher forward valuation ratios for Amazon whenever AWS’ quarterly revenue goes +30% year-over-year.

The chart below is why we should go long on AMZN every time it trades below $3,400.

The high 45.95% revenue CAGR of AWS makes AMZN a high-quality investment. AWS is highly profitable. AWS accounts for 63% of Amazon’s annual operating profits. Andy Jassy, before he became new CEO, was running AWS and he closed 2020 with $13.5 billion in operating profits. Going forward, unlike Bezos’ growth-before-profit tactic, Jassy will likely focus more on increasing Amazon’s operating profits and EPS. In spite of the best efforts of Microsoft (MSFT) and Google (GOOGL), Jassy is still maintaining AWS’s 32% market share in the fast-growing $150 billion cloud computing infrastructure industry.

(Source: Statista)

We should invest more in market-darling stocks like AMZN whenever their growth-fueled business starts producing reasonable profits. Jassy’s profit-focused management of AWS is why Amazon now has a Profitability grade of A+ from Seeking Alpha’s Quant Rating System. The inability of Microsoft and Google to bring down the 32% market share of AWS in cloud computing is very reassuring. Amazon clearly has very loyal AWS customers who continue to snub Azure and Google Cloud.

The relative overvaluation of AMZN compared to its peers in the Consumer Discretionary sector is now worrisome when you consider its Profitability numbers below.

(Source: Seeking Alpha Premium)

Amazon Stock Forecast: The Pandemic Tailwind Is Still Strong

The  Alpha, Beta, and Delta variants are still infecting even fully-vaccinated Americans. Going forward, Amazon’s Online Stores revenue will obviously recover when more North Americans get back to stay-at-home, learn-from-home, and work-at-home mode. The Delta variant is not only more 60% infectious than the Alpha variant but also causes higher hospitalization (2.61x higher).

Young and old unvaccinated/vaccinated Americans will find it more cost-efficient to just stay at home rather than risk getting Delta-infected and lose paid productivity/working time. Getting hospitalized for Delta Covid-19 is not cheap. The Delta variant of COVID-19 wrecked India earlier this year. Delta variant is so scary that Pres. Duterte is already placing Metro Manila cities or NCR on ECQ. ECQ or Enhanced Community Quarantine is the most restrictive lockdown/quarantine rules to prevent COVID-19 local transmission. Duterte did this after the Philippines’ confirmed Delta variant victims rose to 216.

 Going forward, the Online Stores and Retail Third-party Stores segment of Amazon benefits a lot when humans are again scared to go out. More people will again rely on Amazon’s goods and food delivery services to keep them fat and happy at home. Amazon’s growing market share in the United States is also a good reason to buy AMZN.

(Source: Statista)

Pricey research firm, eMarketer, expects the U.S. e-commerce industry to grow +13.7% this year to $908.3 billion. AMZN’s e-commerce success is already assured.  Amazon needs to increase its profits going forward so it can increase its 9% average market share in the $4.921 trillion global retail e-commerce industry.

(Source: Statista)

Going forward, new COVID-19 variants in the United States and other countries will likely help Amazon’s Online Stores segment achieve quarterly revenue of $55 to $58 billion.

Conclusion

AMZN is now a buy because the Q2 2021 post-earnings beatdown gave us a cheaper buy-in window. I was proven correct when I gave AMZN a price target of $3,550 last August 2, 2020. AMZN was trading below $3,060 when I made that previous bullish investment thesis for Amazon. I am again endorsing AMZN as a buy. I’m giving it a 1-year price target of $3,700. I am highly confident that new, more infectious variants of COVID-19 will keep boosting the e-commerce and AWS business segments of Amazon. Going forward, we should evaluate Amazon not as an e-commerce company but as a well-diversified conglomerate.

(Source: Statista)

Focus more on AWS and Subscription Services. Those two business segments are Amazon’s most important growth/profitability drivers. Newly-appointed CEO Jassy might just deliver annual EPS of $60 for AMZN. Going forward, $60 multiplied with a 62x Forward P/E valuation produces $3,720. This guesstimate is near my 1-year PT of $3,700 for AMZN.

My buy-the-dip recommendation for Amazon is also thanks to its super-bullish one-year algorithmic score from I Know First. The AI stock prediction algorithm of I Know First gave AMZN a 1-year trend forecast score of 294.87. The algorithm apparently disagrees with the negative emotions of the investors who dumped their AMZN after the Q2 2021 earnings report.

Past Success With Amazon Stock Forecast

I Know First has been bullish on Amazon’s shares in past forecasts. On our June 29, 2020 premium article, the I Know First algorithm issued a bullish Amazon stock forecast. The algorithm successfully forecasted the movement of Amazon’s shares on the 1 year time horizons. AMZN’s shares rose by 27.89% in line with the I Know First algorithm’s forecast.

Here at I Know First, our AI-based stock forecast algorithm has modeled and predicted assets price movement worldwide for short-term and long-term time horizons, ranging from 3 days to a year. The database used is 100% historical data free from human-derived assumptions and is constantly evolving with newly added data and adapting to changing market situations. Today, we are producing daily forecasts for over 10,500 assets such as forex forecast, as well as gold predictions, while also providing the latest Apple stock news. These forecasts generated by our quant trading tool are used by institutional clients, as well as private investors and traders to identify the best investment opportunities in the market.

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Please note – for trading decisions use the most recent forecast.