Kevin Prigel ups AMZN>>>>>>>>>>>>After downgrading Amazon.com to a hold a few weeks ago, with a $73 price target, I mentioned that my model could be drastically influenced to the upside with positive developments in the Amazon story. At the time I speculated that a way to slash marketing costs (perhaps with "zBubbles") could produce the upside investors were looking for.
A lower operating cost structure remains a viable means to higher prices for shares of Amazon.com, but the story that will get the stock moving for now is Amazon's transformation into a venture capitalist.
Everyone knows that the best venture capitalists leverage existing investments, infrastructure, and a name to demand low valuations from companies, while pushing their public market values skyward. Amazon.com offers upcoming e-tailers the best package of existing investments, infrastructure, and name. An investment from Amazon.com provides instant validation and near certain success.
Amazon.com has used those factors to invest in Drugstore.com, Pets.com, HomeGrocer.com, Gear.com, Ashford.com, Della.com, Alexa Internet (zBubbles), Internet Movie Database, GreenLight.com, and NextCard.com thus far. In every case, Amazon received a valuation lower than market value, while simultaneously pushing market value higher (hypothetical example: A company is valued at $100 million, but they get to invest at $75 million. The same day they make the investment the market value increases to $150 million). Now that's leverage!
Going forward I can only see more of these enticing opportunities for Amazon.com. These investments are most certainly the best use for Amazon's $1 billion cash horde, and for the cash they could raise with their $2.0 billion shelf offering (which they can use to raise more cash when they feel market conditions are right). With these considerations, I am raising my price target on Amazon.com to $87.00 and re-establishing a buy rating (after lowering the stock to a "Hold" at $73).
FWD this page to:
Kevin Prigel serves as President and CEO of StreetAdvisor.com. |
