On Wednesday, Deutsche Bank (ETR:DBKGn) exhibited confidence in Amazon.com Inc (NASDAQ:AMZN), raising its price target from $200.00 to $210.00 and maintaining a Buy rating for the stock.
The firm's analysis highlighted Amazon's significant outperformance in the market, having surpassed market results by approximately 60 points over the last year. The optimistic stance is based on the projected growth in operating income that Amazon is expected to generate in the upcoming years.
According to the assessment, several factors are propelling this earnings growth, with a particular focus on the incremental operating income from Amazon's Advertising business. The analysis delved into the potential of Prime Video Ads and the expansion of the Sponsored TV program.
The firm's conclusions suggest that Amazon is on track to achieve $4-6 billion in Prime Video advertising revenue in 2024 and 2025. This projection exceeds current Street estimates that anticipate only $9-10 billion in additional Amazon Advertising revenue for 2024.
The analysis further implies that the consensus on Street Operating Incomes may be undervaluing the impact of advertising revenue, hinting at a possible $3 billion upside, or a 5% increase, in Advertising related Operating Income (OI) for 2024.
Moreover, the firm sees a significant long-term potential in Amazon's broader connected TV advertising, especially with the Promoted TV program, as Generative AI could lower content creation barriers for small and medium-sized business advertisers.
In light of these findings, Deutsche Bank has revised its 2024 and 2025 Operating Income estimates upward by 10% and 8%, respectively. The new price target of $210 reflects a positive outlook on Amazon's GAAP earnings valuation. The target is based on a 30x multiple of Amazon's projected 2026 GAAP Earnings Per Share (EPS), which is expected to grow at a compound annual growth rate (CAGR) of 34% from 2023 to 2026.
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