, Inc. (AMZN) Could Face “Wal-Mart Decade”: MS

0, Inc. (AMZN) Could Face “Wal-Mart Decade”: MS
Image via: CNBC, Inc. (NASDAQ:AMZN)’s long term potential is greater than its short term potential, according to analysts at Morgan Stanley, and some have even compared the company to Tesla Motors Inc (NASDAQ:TSLA). They warn of the company entering what they call “the Walmart decade.” In a report issued to investors this week, they introduced a sum of the parts analysis and explained why they think the stock is approaching its fair value and could plateau very soon.

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Image via: CNBC

Morgan Stanley remains Overweight on, Inc. (NASDAQ:AMZN)

Analysts Scott Devitt, Stephen Shin and Nishant Verma maintained their Overweight rating on Amazon, although the stock is approaching their $314 per share price target. They said they’re lukewarm on the company in the near term, but they like its long term optionality. The analysts said their rating is based on the company’s long term potential rather than its short term results.

Sum of, Inc. (NASDAQ:AMZN)’s parts

They believe, Inc. (NASDAQ:AMZN) will eventually be able to achieve margins similar to those posted by general merchandise retailers. As a result, they’ve assigned a gross merchandise volume multiple to the company’s retail business in their model. The analysts note that the company’s Internet retail business might not achieve consolidated segment operating income margins of 10 percent by 2022, although if it keeps growing at multiples of e commerce for the next decade, then shares could rise.

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They valued the company’s retail business at $108 billion, Kindle at $23 billion and Amazon Web Services at $25 billion, giving the company’s total value of $156 billion or a $323 fair value per share. After combining their sum of the parts analysis with their analysis of the company’s discounted cash flow, they arrived at their final $314 per share price target.

Is a “Walmart decade” ahead for, Inc. (NASDAQ:AMZN)?

The Morgan Stanley analysts said even though, Inc. (NASDAQ:AMZN) is growing according to multiples of ecommerce, it has posted five quarters of deceleration in paid unit growth in a row. They said if operating metrics don’t improve soon, they believe the online retailer could enter what they call “the Walmart decade.”

They note that Wal-Mart Stores, Inc. (NASDAQ:WMT)’s share price stayed flat from 2000 to 2011 even though its revenue base almost tripled. They said as Wal-Mart expanded into lower margin categories like groceries and posted decelerating revenue growth, the chain’s share price outperformance became restricted. They believe a similar thing could happen to, Inc.  (NASDAQ:AMZN).

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