This analyst is now a lot more bullish on Amazon, Alphabet and Spotify
Rob Sanderson at MKM Partners raised his stock price target on Amazon.com Inc. by 20% on Wednesday, joining a host of other Wall Street analysts that expect a further rise above $2,000, and also became a lot more bullish on Spotify Technology S.A. and Google-parent Alphabet Inc.
Sanderson also nudged up his price target on Netflix Inc. NFLX, +1.60% by only 1.3%, but said he was “enthusiastic” about the stock at current levels.
He lifted his Amazon AMZN, +0.92% stock price target to $2,215 from $1,840, leaving just 3 of the 47 analysts surveyed by FactSet with targets below the $2,000 mark. The e-commerce behemoth’s stock hiked up 0.8% in midday trade, to sit 1.1% below the Aug. 14 record close of $1,919.65.
“We think the margin story at [Amazon] is set up very well for the next several quarters,” Sanderson wrote in a note to clients. He reiterated his buy rating, saying he believes Amazon’s AWS cloud business is in a “sweet spot” for margin expansion, as the period of aggressive build-out investments in AWS that had weighed on margins has now been “lapped.”
Based on 487.74 million shares outstanding as of July 18, the new price target, which is 17% above current levels, would imply a market capitalization of about $1.08 trillion.
He said the next big spend at Amazon is likely in grocery delivery, which could end up as the company’s largest category expansion ever, but spending appears to be ramping at a measured pace, suggesting the impact on margins may be more gradual.
“We still think that [Amazon] is the best long-term growth investment available to investors today,” Sanderson said.
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Also read: Record Amazon profit is result of less hiring, more ad sales.
The stock has soared 62% year to date, while the Nasdaq Composite Index COMP, +0.39% has rallied 14% and the S&P 500 index SPX, +0.11% has gained 7.2%.
For Spotify SPOT, -0.19% Sanderson boosted his target by 23% to $245, which is about 29% above current levels. That would tie him with an undisclosed analyst for having the highest target of the 29 analysts surveyed by FactSet.
He reiterated his buy rating, saying the company has “great monetization potential” in areas outside of music streaming, which it is likely to dominate. The shares slipped 0.4% in morning trade Wednesday, and have climbed 27% since it closed at $149.01 on its first day of trading on April 3.
See also: Spotify reports increase in subscribers, thanks to promotions.
“We believe [Spotify] is becoming the primary platform to connect music fans and artists,” Sanderson wrote. “We think this opens several incremental monetization opportunities in data, analytical tools, tour marketing and support, ticketing, merchandise sales, etc.”
Sanderson also gave Google-parent Alphabet Inc.’s GOOGL, +0.25% stock price target an 8.1% boost to $1,465, from $1,355, to put it 20% above current levels. With about 695.7 million total shares outstanding, according to FactSet, the new target implies a market cap of about $1.02 trillion.
While increasing traffic acquisition costs (TAC) have weighed on operating margins the past three years, Sanderson said the TAC headwinds finally appear to be easing, which will allow Alphabet to “reflate” margins in the second half of the year. Read more about Alphabet’s latest earnings report.
The stock gained 0.5%, and has advanced 16% so far this year.
“We think the margin outlook could improve as websites TAC escalation slows after a three-year drag,” Sanderson wrote. “We think the stock represents very good growth at reasonable price and is a better risk-reward investment than almost every other blue chip in large cap indices.”
For Netflix’s stock, Sanderson lifted his price target to $395, which is 15% above current levels, from $390, saying his previous caution has now been reversed following the recent pullback. The stock surged 1.4% in morning trade, and has run up 8.2% over the past three sessions, but was still 18% below the July 9 record close of $418.97.
Sanderson believes Netflix will grow U.S. subscribers to 90 million and international subscribers to 300 million by 2025. He said content spending could triple by 2025, and “deeply penetrate the mass consumer market” on a global basis by then.
See related: Too many shows? Netflix exec says it can balance quality and quantity.
“We think the secular story remains as favorable as ever,” Sanderson wrote. “Expectations became somewhat elevated, but have been appropriately moderated in our view.”
Tomi Kilgore is MarketWatch's deputy investing and corporate news editor and is based in New York. You can follow him on Twitter @TomiKilgore.
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