is that the stock doesn’t seem as pricey when one considers the potential future payoff of newer businesses, including the “Prime” video business.
On the first score, AWS is already bigger than revenue was at Microsoft, Oracle (ORCL) and other shops when they were AWS’s age: Importantly, AWS sales are already 80% larger than MSFT and ORCL at a similar point in their comparative growth cycles, and we expect this premium growth trajectory to maintain as AWS scales to $57bn by 2022, or greater than 2x MSFT revenue at the end of the decade in question.
This comes as a function of AWS experiencing robust growth early on despite the fact that cloud penetration of enterprise software remains at around 20%.
On the second score, the newer businesses, such as Prime video and the nascent advertising business, can be subtracted from Amazon’s overall enterprise value, making the main e-commerce retail business look even cheaper: For the Advertising business, we believe a 2x premium to our current target SNAP EV of ~$13bn seems reasonable, given Amazon’s large endemic advertiser base, superior revenue scale to date, and exceedingly larger audience.
Given the fact that WMT currently trades at an EV of ~$280bn, AMZN shares look to have upside from here, supporting the upside to our $1,100 target price.