Three Reasons Amazon Should Double Revenue Within Four Years - Goldman

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

Coincident with the publication of their sixth annual internet usage survey report, the Firm expands on why they believe 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 for 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. Goldman 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.

Reiterates Buy and 6-month target of $98.

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

Comments

[Unbeliever]

We are slowly entering a recession, housing is awful, unemployment is rising, fuel costs are unbelievable, and inflation is causing the Fed members to talk about higher interest rates. None of this bodes well for retail so for Goldman to rate it a buy with a current PE of 70 is irresponsible.

But then we have learned repeatedly that the financial community cannot be counted on so this is no shock. Once more a fleecing of the unwary.

[LBC]

Another great pump by Goldman!

[billy bob]

Did you know or understand that FCF is NOT EARNINGS, you mentioned, quoted below, That they will get better terms and that will increase their "FCF". So you are saying that this delay in payments (it increases cash and A/Ps) to suppliers is meaningful??

The only real advantage to increased "FCF" in that manner is that AMZN will make interest on the float, on the cash paid by customers in one quarter paid to supplier in the next Q. The interest income is small compared to their valuation.

They are valued at about $34 bn, have a PE of over 65 and earned $1.5bn in 6 years, WHICH IS NOTHING FOR A $34bn company.



"...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..."

[Daniel Jacome]

AMZN has weird accounting, look at all the academic stuff that has been done on them; also, didnt GS take Mamazon public?