Amazon’s Hidden Gem: Analyst Highlights Twitch’s $46 Billion Value Boosting Amazon’s Future Prospects
As Amazon.com, Inc. AMZN prepares for its next earnings report, investors have their eyes on more than just its e-commerce performance. Needham analyst Laura Martin sees a hidden gem in Amazon’s diverse portfolio: Twitch, the live streaming platform. Martin believes Twitch holds a significant value for Amazon, potentially bolstering the company’s overall valuation and offering a strong reason for investors to remain optimistic.
Key Takeaways:
Twitch’s Hidden Value: Martin estimates that Twitch is worth a staggering $46 billion, exceeding its direct revenue generation through the inclusion of its broad demographic reach, high lifetime values (LTVs), low customer acquisition costs (CAC) and strategic benefits for Amazon.
Services vs. Products: Martin advocates for a shift in Amazon’s valuation perspective, arguing that the company should be viewed as a Services company rather than a Products company due to its expanding margins and the potential upside from generative AI (GenAI).
Unveiling Amazon’s True Value: Martin argues that Amazon’s ability to build large, successful businesses from scratch, like its Cloud and Advertising segments, masks its true value by lowering its reported operating margins.
- Potential Valuation Multiple Expansion: The analyst draws parallels with YouTube within Alphabet Inc. GOOGL GOOG, showcasing how the high growth and high margins associated with Amazon’s services, including advertising, subscriptions, and cloud services, could lead to a potential valuation multiple expansion.
Twitch: Amazon’s $46 Billion Ace
Martin’s analysis dives deep into Twitch, assigning a substantial $46 billion valuation to the platform. This isn’t just about Twitch’s direct revenue; it also encompasses its broader audience reach, higher lifetime values (LTVs) and lower customer acquisition costs (CAC) that Twitch brings to Amazon. This strategic partnership opens up a broader potential and contributes to Amazon’s overall success.
Martin highlights that two-thirds of Twitch’s value stems from these added benefits, making it a highly valuable asset in Amazon’s extensive portfolio.
Potential Valuation Multiple Expansion
Drawing inspiration from her previous analysis of YouTube for Alphabet, Martin suggests that spinning off YouTube could have added 8% (or $15 per share) to Alphabet’s value. However, she argues that Twitch’s integration into Amazon offers a strategic advantage that enhances the company’s overall valuation.
Martin’s analysis emphasizes the fact that Amazon’s services revenue and margins, which include advertising, subscriptions, and Cloud services, are growing faster than its core e-commerce business. This burgeoning growth signifies a potential valuation multiple expansion fueled by the robust margins associated with these services.
Implications Of The SOTP For Amazon’s Valuation
Martin estimates that Amazon invests between $3 billion and $5 billion each quarter into long-term growth initiatives, which are not immediately reflected in the profit and loss statements. These investments, she argues, underestimate Amazon’s normalized economic earnings power. By valuing each business within the Amazon portfolio, Martin provides investors with a comprehensive view of the company’s latent potential.
Unlocking the Potential: Amazon’s Services-Driven Future
Martin’s insights offer a timely and valuable perspective on Amazon’s potential value. The significant, yet often overlooked, contribution of Twitch strengthens Amazon’s position within a competitive market.
With a raised price target and a strong Buy rating, Martin’s analysis sheds light on the underappreciated value within Amazon’s diverse portfolio. This optimistic outlook reinforces a compelling case for investors to remain optimistic about Amazon’s future prospects.
By highlighting the untapped potential of Twitch, Martin’s analysis encourages investors to consider the bigger picture – a shift towards valuing Amazon not just as an e-commerce giant, but as a leader in the rapidly evolving digital services space.
