Jefferies analysts are bullish on Amazon (NASDAQ:AMZN), raising their price target to $235 per share from $225 in a note Tuesday, citing strong growth in both Amazon Web Services (AWS) and advertising sectors.
"We reiterate our BUY rating on AMZN as continued AWS and Advertising momentum combined with retail operating leverage should support 18%+ upside to our SOTP-based $235 PT.," Jefferies states in their research note.
The key driver behind their optimism is the significant contribution of high-growth, high-margin segments to Amazon's overall value. "71% of AMZN's $2.5T SOTP EV comes from AWS and Advertising segments, compared to only 26% from core retail," the note highlights.
Jefferies expects AWS revenue growth to accelerate, "from 13% in 4Q23 to 21% in 4Q24E," due to fading cost optimization headwinds and a growing need for cloud modernization to leverage next-generation Artificial Intelligence (AI).
The advertising sector is another bright spot. Jefferies forecasts "stable 20%+ growth" with additional potential from Prime Video. Their estimates suggest "$2.9B in Ad Sales and ~$800M in incremental subscription Sales (from ad-free opt-in)" from Prime Video in 2024, translating to a net sales increase of $3.7 billion.
Even the core retail business shows promise. "Retail is focused on better efficiency, which is driving higher margins," the firm states.
Jefferies concludes by emphasizing the attractive valuation of Amazon stock. "Valuation is attractive at 13.6x CY25E EV/EBITDA, or a ~25% discount to the 10-Yr average ~18x," they write.
Elsewhere on Tuesday, analysts at Needham & Company maintained a Buy rating and $205 price target on Amazon after meeting with a former Amazon advertising salesperson.
They highlighted factors such as changing media metrics, its ad tier, its wide range of data synergies with AWS, and more as positive factors for the company.