Why one tech analyst thinks Amazon's stock is underappreciated

Published Fri, Mar 25 20226:42 AM EDT

Amazon is one of the biggest names in the ever-growing e-commerce space, but one tech analyst thinks shares of the technology giant are underappreciated and cheap. Evercore ISI's Mark Mahaney offered in a note Thursday several reasons why he thinks Amazon shares are undervalued. Among those reasons is that, according to Mahaney, Amazon investors are getting the company's retail business for practically nothing. He noted that, based on his valuation framework, Amazon's AWS and advertising businesses have an enterprise value of about $1.56 trillion. That's "almost the entire Enterprise Value that AMZN currently trades at. So that means…investors are getting Amazon's Retail segment for free. That's compelling," Mahaney said. Another reason Mahaney likes Amazon so much at current levels is his belief that the company can "tap into a new leg" of revenue growth by building out international and brand advertising through products and offerings such as Twitch and Thursday Night NFL. "Key fact in plain sight – Amazon's Ad revenue is bigger than YouTube ($31B vs. $29B in '21) and is growing faster (56% vs. 46%)," he wrote. "And unlike GOOGL and FB , AMZN faces no privacy driven ad attribution headwinds, as AMZN is a closed-loop ecosystem." Mahaney also said the market is underappreciating Amazon's "shipping elasticity." The company's ability to ship products faster — within a day and in some cases hours — is a strength luring many customers. "When we say 'shipping elasticity,' we are referring to the relationship between shipping time and consumer demand—i.e. the faster the shipping time, the greater the consumer demand/loyalty/spend," he wrote. Mahaney added that Amazon Fresh remains a highly used grocery delivery service. He also thinks the company will benefit from its new technology that allows shoppers to walk in a store, grab their groceries, and simply walk out. "Grocery remains the 'final frontier' for Online Retail and arguably the biggest 'frontier,' as it is the largest category for consumer spend," he said. Mahaney has an overweight rating on the stock and a price target of $4,300, implying upside of 31% from Thursday's closing price.

The Amazon logo is seen at the company's logistics centre in Boves, France, February 11, 2022.

Pascal Rossignol | Reuters

Amazon is one of the biggest names in the ever-growing e-commerce space, but one tech analyst thinks shares of the technology giant are underappreciated and cheap.