Amazon’s stock price has been on a tear over the last year, gaining 46%.
A Barclays equity research team led by Ross Sandler thinks that the party may just be getting started, initiating coverage of the stock with $US1120 price target, or 29% upside.
“Net/net, AMZN is likely to be one of the first trillion-dollar market cap companies; it’s just a question of when, not if, in our view,” the team wrote. “AMZN is arguably the best story in the space, with the most open-ended growth opportunity & most highly functional organisation.”
On the retail front, Barclays notes that margins have been under pressure; however, it sees big investments in infrastructure, such as the possibility of “ramping its fleet of air cargo planes from 100+ to 500+ in the future,” eventually paying off.
Overall, Amazon’s retail business continues its tremendous growth , recording $US35 billion in gross profit during fiscal year 2016, up from just $US9 billion five years ago. Barclays sees this number reaching $US80+ billion by 2021.
Barclays noted the success of Amazon’s “head’ and “tail” product strategy. This is when Amazon drives traffic and volume to the site by aggressively pricing certain hot items like Echo and various electronics, sometimes below cost, then makes up for those lost margins with high margin “tail” items like cases, charges, batteries, etc.