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Goldman Sachs on Amazon: Estimated Potential Upside of 29%

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Goldman Sachs on Amazon

Amazon.com (AMZN) is one of Goldman Sachs (GS) favorite top ten stocks that could beat the market amid the current volatile environment. The e-commerce giant has a huge addressable market—much larger than any other online retail giant—specifically, the global retail market (XRT), which has the potential of one trillion dollars. Amazon’s business model is also unique.

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Expenditure on R&D

The company is mainly focusing to smooth the e-commerce process and provide valuable services to customers, particularly new and improved features. For this reason, Amazon invests so heavily in R&D (research and development). According to the estimation provided by Goldman Sachs (GS), Amazon could provide a cash return of 41% on cash investment in R&D by 2018. The investment firm also set a target price of $1,010 for this stock by 2018.

Notably, billionaire investor Bill Miller also has an optimistic view of Amazon. In September 2016, at the Delivering Alpha Conference, he said that the stock’s price could actually double in three years.

Amazon’s business model

Amazon is customer-passionate. In its business model, customer requirements are identified individually. The company focuses on tracking increasingly more customers, mainly through AWS (Amazon Web Services).

Amazon’s business model focuses on its potential to capture the global (ACWI) (VEU) retail market. Although Facebook (FB) and Google (GOOGL) have sizeable addressable markets, their markets are still small compared to Amazon’s, which implies that Amazon’s sales growth will only accelerate. (Read Market Realist’s “Success of Prime Day Will Influence Amazon’s 3Q Revenue Growth” to learn more about Amazon’s revenue growth.)

Other firms’ recommendations for Amazon

Wolfe Research, RBC Capital, and J.P. Morgan (JPM) also have positive views of Amazon (AMZN). As the chart above shows, on a YTD (year-to-date) basis, Amazon had returned nearly 21% on November 2, 2016. It returned nearly 43% in the past year and 251% in the past five years as of the same date. By comparison, the broad-market S&P 500 Index (SPY) has returned 88% in the past five years.

In the next part, we’ll analyze Goldman Sachs’s stance on Google.

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