Baird top analyst Colin Sebastian puts in his two cents on Amazon.com, Inc. (NASDAQ:AMZN) after the online retail giant recently disclosed sales results from India for the fiscal year ending in March 2016.
Growth rates for Amazon India have increased 120% y/y to Rs227.5B ($334 million). Additionally, the company has committed over 5 billion in investments in what Sebastian describes as “one of the fastest growing international markets.” However, Amazon India saw a significant increase in losses to 110% for FY16.
The analyst believes that the losses are two-fold:
First, Sebastian points to new infrastructure, specifically with fulfillment and technology, as well as rollout expenses for the Prime loyalty service and Prime Video streaming that have racked up a surge in losses for the giant.
Second, Amazon has been implementing “aggressive discounting across its platform” to combat fierce competition in the Indian market, like Flipkart and Snapdeal. As the giant establishes its position as one of the leading two e-commerce sites in India under Flipkart, the three companies are engaged in a discounting battle to draw customers and drive transaction volumes.
Even considering the upturn in losses, Sebastian is nonetheless bullish on the stock’s prospects. With regards to the giant’s place in India, the analyst adds, it “remains a key intermediate-term growth market for every global internet player.” In fact, Sebastian estimates the number of internet users in India has the “potential to exceed 400 million by 2018.”
Mobile is on the rise in India, as the analyst opines, “Unlike developed markets, which are undergoing a transition from desktop to mobile e-commerce, India has largely skipped the desktop phase and is transitioning to a truly mobile-first market. [..] Rapid adoption of smartphones and improvements in internet infrastructure remain core drivers of growth.”
Sebastian remains confident that Amazon is “positioned to be a top Indian e-commerce platform,” contending, “We believe Amazon’s significant resources will allow it to pressure local competitors who are already burning cash at high rates.”
Overall positive on the giant’s long-term standing in the Indian market, the analyst reiterates an Outperform rating on AMZN with a price target of $850, which represents an 11% upside from where the shares are currently trading.
As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks.com, top five-star analyst Colin Sebastian has a total average return of 13.9% and a 67% success rate. When recommending AMZN, Sebastian yields 31.8% in average profits on the stock. Sebastian has earned a high ranking of #44 out of 4,291 analysts.
TipRanks analytics show AMZN as a Strong Buy. Out of the 31 analysts polled by TipRanks in the last 3 months, 29 rate Amazon stock a Buy, while 2 maintain a Hold. With a return potential of 23%, the stock’s consensus target price stands at $952.89.