The growth of Amazon’s (AMZN) Amazon Web Services (AWS) and advertising divisions is poised to drive revenue, profit margins, and the company’s stock price higher, according to Jefferies analysts. As Amazon expands beyond its dominant e-commerce position, these higher-margin businesses are expected to become increasingly significant.
AWS and Advertising as Key Revenue Drivers
Jefferies analysts highlighted the potential of AWS and advertising to provide substantial higher-margin revenue streams. In a note on Monday, they emphasized that these divisions could enhance Amazon’s overall profitability as the company aims to make its retail operations more efficient. The analysts maintained a “buy” rating on Amazon shares and raised their price target from $225 to $235.
If achieved, the $235 price target would mark an 18% increase from Amazon’s late Tuesday share price of just under $200. The analysts also presented a bullish scenario where the stock could rise over 40% to $285 if AWS and advertising revenues grow faster than anticipated. Amazon shares have already surged by more than 30% this year, starting from a closing price of $151.94 at the end of 2023.
“The two highest operating margin businesses are taking the front stage, driving improving profitability and enterprise value for the whole company,” the analysts noted.
AWS: A Cornerstone of Growth
AWS has been a robust growth driver for Amazon, with the segment’s revenue increasing by 17% year-over-year to $25 billion in the most recently completed quarter. CEO Andy Jassy, in a letter to shareholders earlier this year, expressed confidence in the growth potential across all of Amazon’s businesses. During the April earnings call, he noted that AWS continues to expand in line with the broader growth of the cloud storage industry and its links to generative AI technologies.
Advertising: A New Revenue Stream
Amazon Prime Video introduced ads earlier this year, and Jefferies analysts believe the advertising business could generate nearly $3 billion in new sales for Amazon in fiscal 2024. Additionally, the company is expected to earn hundreds of millions of dollars from consumers who opt to pay extra to avoid seeing ads.
In summary, the strategic growth of AWS and the burgeoning advertising division are positioned to significantly enhance Amazon’s financial performance, according to Jefferies analysts, who see a strong potential for the company’s stock price to rise substantially as these businesses expand.
