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Key Takeaways
- Amazon stock should continue rising this year as its newer revenue streams, like advertising and AWS, grow and the company cuts costs in its retail operations, Jefferies equities analysts wrote.
- Amazon shares are up more than 30% already this year. Jefferies analysts are projecting growth of at least a further 18%.
- Ads on Prime Video alone could generate nearly $3 billion in fiscal 2024, their first year of existence, the analysts wrote.
The growth of two of Amazon’s ( AMZN ) divisions could drive revenue, profit margin, and the company’s stock price higher as it expands beyond its dominant position in e-commerce, Jefferies analysts wrote.
The company’s bets on Amazon Web Services (AWS) and advertising should provide higher-margin revenue streams as they grow and the company shifts to making its retail operations more profitable, the analysts wrote in a Monday note. They maintained a “buy” rating on the shares, raising their price target to $235 from $225.
AWS, Advertising Businesses Provide Runway for Stock, Analysts Say
The $235 price target would represent an increase of about 18% from Amazon’s share price late Tuesday at just under $200. Jefferies analysts said they see a bull case for shares to rise over 40%, to $285, if AWS and advertising revenue grows faster than expected. Amazon shares have risen over 30% so far this year after closing 2023 at $151.94.
“The two highest operating margin businesses are taking the front stage, driving improving profitability and EV [ enterprise value ] for the whole company,” the analysts wrote.
AWS lately has been a strong source of growth for Amazon, with revenue in the segment growing 17% year-over-year to $25 billion in the company’s most recently completed quarter . CEO Andy Jassy wrote in a letter to shareholders earlier this year that the company sees growth potential in all of its businesses, and said on April’s earnings call that AWS has grown as the cloud storage industry continues to grow, along with its connections to the world of generative AI.
Ads first came to Amazon Prime Video earlier this year. The Jefferies analysts said that ad business could drive nearly $3 billion in new sales for Amazon in fiscal 2024, along with hundreds of millions of dollars from consumers who pay extra to avoid seeing the ads.