Amazon continues to receive praise from analysts, not only for its strength in the e-commerce area but also for its cloud offerings, which are becoming a bigger and biggest piece of the Amazon pie. The latest bullish report comes from MKM Partners Managing Director Rob Sanderson, who has initiated coverage of Amazon stock with an $800 per share price target and a Buy rating.

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In the medium term, he thinks Amazon will be worth as much as $1,300 per share.

Amazon dominates in e-commerce, cloud

In his report dated Dec. 15, Sanderson said Amazon is well-positioned in two of the biggest areas of secular growth, which are e-commerce and cloud computing. He noted that the North American e-commerce segment is growing at a pace that’s more than seven times that of traditional retailers in aggregate. He also added that Amazon’s continued investments in the online retail business is masking its potential earnings power.

However, looking out to the long term, he thinks Amazon’s North America retail business will be able to deliver margins that are better than those of traditional retailers. He thinks the e-commerce business is “structurally more efficient” than brick-and-mortar stores.

Retail growth despite higher Amazon Prime price

Further, the analyst called Amazon Prime “a game-changer” and noted that even though the company has raised the subscription price 25%, its North American e-commerce growth rate has accelerated from 23% to 29% over the last year. Internationally, the online retail business has accelerated from 13% to 24% in constant currencies.

Sanderson believes that the operating margin for Amazon’s North American e-commerce business can reach 8% within the next four years. This year the margin is expected to be at only 4.4%. An 8% operating margin places Amazon in line with his composite of more than $10 billion retailers.

Internationally, he believes the company can reach a 5% operating margin over the same timeframe. He noted that the company enjoys several advantages in the areas of scale and structure, plus a fruitful third-party marketplace with high margins.

Amazon Web Services growing fast

Turning to Amazon’s cloud service offerings, the MKM Partners analyst notes that the business has seen its margins climb by 1,660 basis points compared to last year. The cloud segment also racked up an acceleration in topline growth, which climbed to 78% in the last quarter. The average revenue run rate for the business is $8.3 billion.

Sanderson added that revenue from Amazon Web Services is growing at a rate that’s 13 times the average of $1 billion enterprise tech suppliers. Its growth rate is also more than double the rate of Salesforce, which is the next nearest competitor in terms of revenue growth.

Further, he said aggregate spending on services offered by Amazon Web Services like compute, database, storage, analytics, and other areas, has surpassed $300 billion and is still rising. The analyst added that Amazon is still expanding its applications in the broader IT services market, which is in excess of $500 billion. Overall, he believes Amazon Web Services can blossom into a $38 billion revenue business within the next four years, assuming an operating margin of 35% in the same timeframe. The cloud segment’s operating margin currently stands at 25%.

Amazon has built trust

Sanderson also notes that Amazon management has managed to gain investors’ trust even though its core e-commerce business has never shown “significant margin leverage” and it has only recently revealed its cloud business’ profit growth trajectory. As a result, he concludes that Wall Street now believes the Amazon has significant long-term opportunities and that the current high levels of spending are building “meaningful value” for the long term.

As a result, he thinks Amazon will see net profits of more than $20 billion within the next four years, which he expects to slap a value of $1,300 per share on the e-commerce and cloud giant.

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