Tuesday, June 17, 2008

Amazon.com (NASDAQ:AMZN): Three supporting reasons why AMZN can speedily double revenues - Goldman Sachs

Goldman Sachs is out positive on Amazon.com (NASDAQ:AMZN) outlining three supporting reasons why AMZN can speedily double revenues.

Coincident with the publication of their sixth annual internet usage survey report, they expand on why they believe that Amazon can sustain 20%-30% per year revenue growth for several years, despite maturing industry benefits from broadband penetration, and the law of large numbers. Goldman models Amazon doubling its revenue over 3-4 years based on their forecast users, units per user, and revenue per unit:

1) Amazon's market share of e-commerce activity is around 3.5%, while its share of incremental e-commerce activity is around 7.0%, so over time its portion of an expanding market may effectively double.

2) Excluding automobiles, Amazon's GMV per customer is around half of eBay's, despite an arguably higher income customer mix; firm believes that Prime narrows this gap by encouraging Amazon customers to shop cross-category.

3) The Kindle digital reader should sustain growth in Amazon's most mature category, books.

Trading at around 20X 2009E free cash flow, Goldman believes Amazon stock can outperform on rising revenue if margins are only flat; rapid revenue growth assists free cash flow because Amazon uses its improving category share to negotiate longer payables to suppliers in categories such as books.

Reits Buy and 6-month tgt of $98.

Notablecalls: So Goldman is calling for AMZN to speedily double its revenues. It's a buy! Worth at least 1-1.5 pts of upside.

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