The internet travel business is a great business opportunity for Amazon, according to one top Wall Street firm.
Morgan Stanley reiterated its overweight rating for Amazon shares, saying the e-commerce giant can generate significant profits from the travel sector.
"Online travel has proven to be immune to Amazon disruption so far. But as we have seen with other categories, that doesn't mean Amazon won't try again, and they should," analyst Brian Nowak wrote in a note to clients Thursday. "Amazon's focus on selection/service, pricing, and frictionless payment that drive conversion and stronger user economics also translate directly to travel."
The analyst said Amazon has more than 300 million consumers who could spend money on a potential travel offering. He estimated online travel companies such as Booking and Expedia spend about $620 million a year each to acquire their global hotel room inventory, which is not a large investment size for Amazon.
"Our rough ad efficiency analysis (ad spend/transaction) speaks to Amazon's ability to drive repeat/direct traffic…as its estimated $0.75 ad spend/transaction is a fraction of what Booking/Expedia spend," he wrote.
Nowak said travel represents an annual market of $480 billion in the U.S. alone. He estimates Amazon could make $600 million of profits a year if it builds an online hotel business roughly half of Expedia's size.
The analyst reiterated his $1,500 price target for Amazon shares, representing slight downside to Thursday's close. The company's shares have surged 33 percent so far this year through Thursday, which may be a factor in why the analyst hasn't updated his forecast yet.
Amazon shares rose 0.9 percent Friday.