Amazon.com, Inc. (AMZN): A Tug-Of-War Between the Bulls and Bears

With AMZN's 4Q showcase approaching Thursday, one bull boosts his target expectations, calling for a trillion-dollar baby; while one voice warns of the risk of pullback.


As Amazon.com, Inc. (NASDAQ:AMZN) gears up to dish out its fourth quarter earnings come February 1st, analysts from across the Street are weighing in- from a bull gambling on trillion-dollar valuation to those bracing for a withdrawal in momentum.

One bull roars for Amazon’s gilded advertising opportunity, now realizing he once undervalued just how good the prospects were in this business for the e-commerce king. Once estimated at a $50 billion value tag, the analyst now wagers the company’s advertising business is worth a massive $75 billion.

As such, Morgan Stanley analyst Brian Nowak jumps his “bull case” price target from $2,000 to $2,100, which implies a close to 50% upside from current levels. Additionally, the analyst maintains an Overweight rating on AMZN stock while bumping up the “base case” price target from $1,250 to $1,400. (To watch Stanley’s track record, click here)

Notably, should the e-commerce king spiral up to Nowak’s “bull case” expectations, Amazon would boast a whopping $1.01 trillion market valuation.

Nowak continues to be “bullish Amazon’s ad opportunity as the company continues to drive its high margin revenue stream businesses that enable it to invest harder than ever and deliver upward revisions.”

Imagine if the e-commerce players vying for brick-and-mortar retail upper hand edges were to shift to online ad spending. Present-day, the analyst wagers consumer players are anteing up $55 billion to opt for shelf space and the enticing physical placement of product that magnetizes customers to shell out dollars in brick-and-mortar retail stores. After all, savvier shelf space could land a big role in impacting what consumers ultimately choose to purchase.

Yet, should these retailers transition towards online ad spending, Amazon will be the victor here, leaving Nowak to bet the company’s sponsored ad business could soar 54% annually between 2016 through 2019.

“To be clear, we don’t expect investment to let up, but rather we expect these high margin revenue streams to allow for larger investment and profits,” explains the analyst.

Ad industry chats have inspired Nowak to assess most ad dollars for these consumer players stem from “traditional branded trade spend;” ad dollars that “CPG brands/manufacturers pay to traditional brick and mortar retailers to promote inventory through their channels.”

Consider that from January 1st of 2017 to present-day, Amazon stock has rocketed almost 69% in value.

Piper Jaffray analyst Craig W. Johnson is all too aware of the company’s pattern in risking crossing a line into an overextended zone.

In other words, what comes up can just as quickly come down, and Johnson warns, “It’s very similar to what you’d seen back in early 2013, also in early 2016. When you got this far extended usually there was some sort of setback and a healthy correction that took place.”

For context, at the start of 2013, Amazon was enjoying the momentum of a 32% rise in share value. However, then the spring hit, where first it was a 5% slip; then that 5% saw another 7% dip join along. All the same, Amazon still closed out 2013 as a winner- only to find 2014 to be a rough spot, where the stock finished out the year 22% below where it had begun.

With a quarterly print due this Thursday, shares could ride the earnings buzz. Only time will tell if Nowak’s bet is correct for Amazon to hit $1 trillion in valuation within the next year- or if a rally will turn pullback like Johnson fears.

TipRanks shows a strong bullish analyst consensus betting on this e-commerce king. Out of 28 analysts polled in the last 3 months, 27 are bullish on Amazon stock while 1 maintains a Hold. The 12-month average price target stands at $1,442.88, marking a nearly 3% upside from where the stock is currently trading.

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