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Amazon.com - AMZN US

United States

Outperform

Prime Leading to Share Gains

Event

  • In ‘15, we estimate AMZN will take 51% of US E-commerce growth and 24% of retail growth.

Impact

The Bottom Line:

  • AMZN’s share of U.S. retail growth is growing significantly.

  • In 2015, we expect AMZN will account for more than half of E-commerce growth:

o   For every $1 of E-commerce growth, AMZN will take $0.51.

o   For every $1 of total adj. retail growth, AMZN will take $0.24.

o   Think about the inverse of that: EVERY OTHER retailer is fighting for $0.49 and $0.76 of each dollar, respectively.

  • AMZN’s share gains are accelerating, on our numbers.

o   AMZN’s U.S. E-commerce share will grow 400 bps (its fastest ever) this year to 26%, up from 22% last year and 16% in ‘11.

  • We believe that the accelerating gains are explained by one word: Prime

o   We estimate AMZN Prime members now account for ~25% of total U.S. households (this is likely quite conservative).

o   We continue to believe that 50% of U.S. households will be Prime by 2020 (also a conservative estimate, as explained below).

  • There is still a lot of room to grow as AMZN accounts for just 3.5% of total adj. U.S. retail sales (excl. autos, food and beverage, and gas).

Fig 1 AMZN Share Gains Accelerating

Source: Company Data, U.S. Department of Commerce, Macquarie Research, December 2015

While 2015 saw AMZN’s stock appreciate 114% in large part based on AWS, we believe that Prime will lead to more gains in 2016. We are raising our AMZN PT to $760 from $740 and believe that the retail business will drive growth.

Earnings and target price revision

  • No change to earnings estimates, raise PT to $760 from $740.

Price catalyst

  • 12-month price target: US$760.00 based on a DCF methodology.

  • Catalyst: Holiday sales data and 4Q’15 earnings

Action and recommendation

  • Affirm Outperform rating.

Analyst(s)
Macquarie Capital (USA) Inc.
Ben Schachter
+1 212 231 0644
ben.schachter@macquarie.com

Kelly Dougherty, CFA
+1 212 231 2493
kelly.dougherty@macquarie.com

21 December 2015

AMZN US

Outperform

Price (at 21:00, 21 Dec 2015 GMT)

US$664.51

Valuation

US$

760.00

- DCF

12-month target

US$

760.00

12-month TSR

%

+14.4

GICS sector

Retailing

Market cap

US$m

311,497

30-day avg turnover

US$m

2,723.2

Number shares on issue

m

468.8


Investment fundamentals

Year end 31 Dec

 

2014A

2015E

2016E

2017E

Revenue

bn

89.0

107.8

130.1

156.1

EBIT

bn

0.3

2.5

5.8

9.6

EPS adj

US$

-0.15

2.26

6.42

14.72

EPS adj growth

%

nmf

nmf

183.9

129.1

PER adj

x

nmf

293.7

103.4

45.1

EV/EBITDA

x

60.4

35.8

27.5

19.8


AMZN US vs S&P 500, & rec history

Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Capital (USA), December 2015

(all figures in USD unless noted)


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