Amazon’s Prime Video Service Drives Growth, Analysts Raise Price Target

Evercore ISI has updated its outlook for Amazon.com (NASDAQ:AMZN), raising its price target for the stock to $240 from $225 and maintaining an outperform rating. The firm’s analysis highlighted Amazon’s focus and growth potential for its Prime Video service, noting a significant expansion of content, including more NFL games, Wild Card playoff matches, 66 NBA games in the 2025 season, and exclusive rights to the 2024 PPA World Championship.

The report highlights the company’s strategic move to increase revenue streams. During the company’s second-quarter earnings call, Amazon CEO Andy Jassy pointed to a $50 billion revenue run rate and suggested that Amazon’s capabilities in video advertising are still in their early stages. This was demonstrated by Amazon’s first participation in the Upfronts, a series of meetings where TV networks present their upcoming season’s programming to advertisers.

Evercore ISI says its channel checks have led to Amazon starting to increase advertising volume on Prime Video starting in the second half of the year. The company has updated its Amazon Prime Video (APV) monetization analysis to include an interactive model that forecasts scenarios for incremental revenue and profit from APV through advertising and subscriptions.

The analysis projects that APV could drive total revenue of $3 billion to $5.9 billion in 2025, an incremental 3% to 9% over Amazon’s projected $56 billion in 2024 ad revenue. This potential revenue increase is expected to accelerate advertising revenue growth to 20% in 2025, following 19% in 2024.

Additionally, the company estimates that APV could generate operating profits of $1.8 billion to $3.3 billion in 2025, representing a 3% to 5% increase over projected Amazon’s total operating profits of $61 billion in 2024. The report suggests that expanding APV monetization could drive continued expansion of Amazon’s operating margins beyond 2025.

Amazon’s Strategic Moves and Broader Retail Trends

Amazon also announced an investment of more than $2.2 billion to boost pay for hourly employees in its fulfillment and shipping divisions across the U.S. Meanwhile, Samir Kumar was named head of Amazon’s India operations, a key step as the company expands in the Indian market amid increased regulatory scrutiny.

Mastercard predicts that U.S. retail sales will grow 3.2% during the upcoming holiday season, with online sales expected to surge 7.1%. The electronics sector in particular is expected to see sales increase 6.7%.

Financial Strength and Growth Potential

InvestingPro data supports the financial strength behind Amazon’s strategic moves. With a market cap of $1.99 trillion as of Q2 2024 and impressive revenue growth of 12.32% over the past 12 months, Amazon’s scale and financial health remain robust. The company’s ability to generate gross profits of $290.34 billion during the same period, at a margin of 48.04%, reflects its operational efficiency.

According to InvestingPro Tips, Amazon is trading at a low P/E ratio relative to its near-term earnings growth, which may be attractive to value-focused investors. Additionally, analysts expect the company to be profitable again this year, which is backed by a track record of profitability over the past 12 months and high profitability rates over the past decade.