Amazon.com: For the Patient Only

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David Evanson and Michael Graham

Forbes.com, Winter, 2012

Following Q4 Amazon.com (AMZN) earnings, Canaccord Genuity Internet technology analyst Michael Graham reiterated his HOLD rating on the company and lowered his price target to $210 from $225. Mr. Graham said:

“While we are bullish on Amazon’s very long-term prospects and ultimate share of global retail, we remain of the view that the stock may see continued pressure, especially relative to robust growth elsewhere in the sector, until profitability can recover. We believe management is running the business essentially at break-even as a matter of design while the company reaches for ever-expanding market share, and we think marginal investors will continue to lose patience with this strategy in the medium term.

We are lowering our price target from $225 to $210. Our new target is based on a 25x P/E applied to our 2015 pro forma EPS estimate of $12.59, discounted to the present at a rate of 10.7%.

We have noted previously that the stock seems to bottom at around 1.3x revenue, and note that the stock traded after hours following the earnings call at around $178 which is very close to 1.3x our new 2012 revenue estimate. However, with revenue estimates likely to come down, we believe there could be a temporary dip below this support level. “