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Could Amazon hit $1,000 a share?

Elizabeth Weise
USATODAY
An box containing an order from Amazon.Com is shown after it was delivered to a house in Etters, Pa, Wednesday, Sept 16, 2005.

SAN FRANCISCO — Wall Street is bullish on Amazon, with some suggesting its stock could hit $1,000 in the not too distant future.

Rising e-commerce sales, growing Prime memberships and further expansion of its cloud service AWS are expected to provide solid results when the Seattle company posts its third-quarter financial results Thursday after the markets close.

Analysts polled by S&P Global Market Intelligence anticipate Amazon (AMZN) will report revenue of $32.654 billion and a profit of 82 cents per share. That compares with 17 cents in the year-earlier period. Amazon’s third-quarter guidance was net sales of between $31.0 billion and $33.5 billion.

“Amazon enters the holiday quarter on a roll after strong sales in Q3, including an improved Prime Day in July. Growth is likely to easily exceed the 16.1% growth in U.S. retail e-commerce sales,” said eMarketer retail analyst Yory Wurmser.

A USA TODAY analysis earlier this month found that if items from third-party sellers are included, Amazon could account for as much as 30% of total U.S. online sales.

Amazon could be a lot bigger than we think

The company has ramped up its fulfillment centers, adding 18 this quarter. It’s also hired 120,000 more workers, 20% more than last year.

Looking for a job? Amazon's hiring 120,000 holiday workers

While that expansion could serve the company well in the crucial fourth quarter holiday sales season, it also costs money.

“It’s significantly more investment, and that’s going to put pressure on profitability in the third quarter,” said Edward Jones analyst Josh Olson.

However, given Amazon’s usual workings, “if they’ve gauged market demand correctly, it will translate into accelerating growth in their retail business,” said Olson.

Primed for the holidays

Prime membership continues to grow, according to Chicago-based Consumer Intelligence Research Partners. Amazon itself does not release Prime membership numbers, but CIRP estimates that there are now 65 million U.S. members, meaning 52% of Amazon customers are Prime members.

That's up from an estimated 47 million U.S. Prime members at the end of the September 2015 quarter, an increase of 38% in one year.

Prime members are very lucrative for the company, spending on average about $1,200 per year, compared to about $600 per year for non-member customers.

“I don’t think anybody is skeptical about revenue, either from retail or AWS. The only open question is how much Amazon allows to drop to earnings,” said Michael Pachter, managing director of equity research at Wedbush Securities in Los Angeles.

“They’ve been uneven. It’s been kind of a function of Bezos’ whim and caprice. When he wants to make money, he delivers it. When he finds other things to spend it on, he doesn’t,” Pachter said.

All eyes will be on its guidance figures for the vital fourth quarter and what it portends for holiday sales.

As in past quarters, Amazon's cloud computing division, AWS, is expected to be a main driver of profits. According to Synergy Research Group AWS has 31% of the cloud market, with Microsoft’s Azure running far behind at 9% and Google at 4%.

Last quarter, AWS revenue grew 58% year-over-year, accounting for 9.5% of the company’s total revenue. Its operating income was $718 million, larger than Amazon's North American retail profit of $702 million.

Split?

Amazon’s stock price is up 22% for the year, and it has outperformed both the S&P (+6.1%) and Nasdaq (+8.7%) indexes.

For the future, Cantor Fitzgerald, RBC Capital Markets and others have all raised their price targets on Amazon to $1,000 per share. The stock hit an all-time high of $847.21 earlier this month.

Which raises the question: Should Amazon split its stock as it rises to ever-higher levels? Edward Jones' Olson doesn’t think so, because Amazon is really aimed more at institutional rather than retail investors.

“A share split is interesting in the sense that it’s psychologically compelling, but economically there is no benefit conferred,” he said.

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