- The most valuable aspect of Amazon's media business, Martin writes, is that 20% of Prime members say the streaming services are the main attraction.
- "Media assets typically trade at higher multiples than retailer multiples, so they pull AMZN's average valuation multiple upwards," Martin wrote.
- Amazon's stock is up 42% this year, while the S&P 500 is down 3.3%.
Amazon's media assets, which include Prime Video, Prime Music and Twitch, are worth about $500 billion, making them almost as valuable as company's giant cloud-computing business, according to Laura Martin, an analyst at Needham.
In initiating coverage of Amazon with a "buy" rating on Tuesday, Martin wrote that several of the company's media products have "hidden asset values." Streaming game service Twitch, for example, opens the company up to a younger generation of consumers, while Amazon Music strengthens its position in the home, wrote Martin. She added that 20% of Prime members say the reason they pay for the subscription is for media offerings.
"AMZN's media strategy supports our view that the company employs a 'land and expand' strategy by entering consumers' homes through its e-commerce business and subsequently adding services to its consumer-facing bundle that increase" value, Martin wrote. "Media assets also improve AMZN's data flywheel because they improve AMZN's consumer data across more demos inside the home, which improves its next add-on product."
Martin placed a $3,200 price target on the stock, though she said it's worth $4,500 to $5,000 longer term. The shares rose 1.7% on Tuesday to close at $2,615.27. It's up 42% this year, giving the company a market capitalization of $1.3 trillion.
Digital media companies in video, music and gaming have much higher margins and command stronger multiples than retailers. Like with Amazon Web Services in computing infrastructure, the more Amazon can mix in these newer businesses, the more investors are willing to pay for every dollar of revenue.
"Media assets typically trade at higher multiples than retailer multiples, so they pull AMZN's average valuation multiple upwards," Martin wrote.
To get to $500 billion in value, Martin estimates that the media portion of Prime subscriptions is worth $187 billion, based on 2020 revenue, while Twitch is worth $15 billion and the music business is at $3.8 billion. Advertising, she says, is worth $127 billion. The "hidden value" accounts for the rest, Martin says.