MoffettNathanson analysts increased their price target for Amazon.com (NASDAQ:AMZN) to $230 from $228 and continue to recommend a Buy rating. The analysts noted that despite Amazon’s EBIT estimates for fiscal 2024 being revised upward by 60% over the past twelve months, and the stock outperforming the S&P 500 with a 64% gain compared to 20%, there still appears to be potential for further growth.
The analysts attributed this optimism to three main factors: growth in advertising revenue, leverage from reduced service costs, and expansion in first-party (1P) gross margins. While Amazon Web Services (AWS) revenue forecasts align with consensus and could present additional upside, Morton’s confidence is rooted in detailed assessments of underappreciated areas such as advertising and retail margins.
The analysts pointed out that the second half of 2023 showed strong advertising performance and positive industry signals, leading to an enhanced forecast for Amazon’s advertising revenue. According to the analysts’ projections, consolidated advertising revenue is expected to grow at a compound annual growth rate (CAGR) of 20% through 2026, fueled by a 16% growth in onsite advertisements and a significant 36% increase in non-core advertising activities.