A Question Of When, Not If: Amazon And The $1 Trillion Market Cap

Amazon.com, Inc. AMZN “is on the winning side of the biggest TAMs & lowest penetration shifts in consumer internet & enterprise, and has more runway than just about any other company, in our view.”

Barclays’ Ross Sandler initiated coverage of the company with an Overweight rating and $1,120 price target.

Potential For $1T Market Cap

The analyst mentioned that while AWS is “well understood,” it's still in its nascent stages and could become a $100 billion revenue business over time.

The retail business also has a significant runway, while Prime, logistics and automation are only just beginning.

Sandler stated that the Q1 2017 guidance has set a low bar, indicating decelerating growth and retail CSOI (consolidated segment operating income) margin, which investors are “conditioned for.”

“Net/net, AMZN is likely to be one of the first trillion-dollar market cap companies; it’s just a question of when, not if, in our view,” the analyst said.

Related Link: Yet Another Sign Of Amazon's Dominance Over Retail

The Bear Case

On the other hand, Sandler pointed out that Amazon’s stock was expensive, compared to its mega-cap tech peers, while the company is facing more competition at present than ever before, while growth rates are expected to decelerate going forward.

“Unlike prior bouts of margin compression, the investments in retail, particularly Video, India & Logistics are more permanent, so investors hoping for a retail margin uptick are likely to be disappointed for several quarters/years,” the analyst elaborated.

However, Sandler believes Amazon.com is the “best story” in the space, with the maximum growth opportunities and the most “highly functional” organization.