According to CNBC, RBC Capital has raised its price target on Amazon stock (AMZN) from $2,250 per share to $2,600. CNBC added that RBC believes Amazon’s one-day delivery to Prime members will boost revenue. The expedited delivery is set to be fully available in the US within a year and globally in the next two to three years.
Amazon stock, peers, and equity markets
Amazon stock reacted positively to the price target upgrade to $2,600, which implies a 45% gain from its current price. Analysts’ mean target for the stock is $2,269, which implies a 27% gain.
Yesterday, Amazon stock rose by 0.8% and was the only tech stock to rise. Most of its peers and equity markets fell.
The S&P 500 (SPY) fell 0.6% yesterday, dragged down by recession fears. The Institute for Supply Management’s manufacturing index was lower than expected. Some see this news as a sign of recession. Plus, the ten-year Treasury yield fell to a new low. The escalating US-China trade war added fuel to the fire.
Amazon peers Facebook (FB), Apple (AAPL), and Alphabet (GOOGL) fell 1.8%, 1.5%, and 1.8%, respectively, yesterday. Meanwhile, Twitter (TWTR), Netflix (NFLX), and Walt Disney (DIS) fell 1.6%, 1.5%, and 0.7%.
RBC expects one-day deliveries to boost revenue
According to CNBC, RBC analyst Mark Mahaney wrote in an investor note that he expects one-day deliveries to boost Amazon’s revenue to $337 billion next year, which implies 7%–15% growth. In 2018, Amazon’s revenue stood at about $233 billion.
Analysts expect Amazon’s revenue to rise by 20% to $279 billion this year, and 19% to $332 billion in 2020. The company is developing its one-day delivery network. In the second quarter, Amazon surpassed its transport cost estimate of $800 million as it moved inventory faster to fulfill one-day deliveries. Amazon stock could be boosted as investors recognize how faster shipments help the company’s sales and earnings.
In Amazon’s earnings press release, founder and CEO Jeff Bezos said, “Customers are responding to Prime’s move to one-day delivery — we’ve received a lot of positive feedback and seen accelerating sales growth.” He added, “Free one-day delivery is now available to Prime members on more than ten million items, and we’re just getting started.”
Analysts seem assured about Amazon’s long-term outlook based on its expanding logistics network. As the company develops its logistics infrastructure, its cost efficiency may also improve. Amazon expects its earnings to weaken in the third quarter. However, its developing transport network should support its growth.
Analysts also see AWS (Amazon Web Services) as a growth driver for the company. Amazon’s leadership position and reliable partner system have improved the AWS segment’s performance. In the second quarter, Amazon saw faster enterprise migration and higher usage among customers. The company is also spending on marketing in the segment to boost its sales. Analysts expect Amazon’s earnings to rise 17% this year, and 41% and 47% in 2020 and 2021, respectively.