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Why We Raised Amazon’s Fair Value

Second-quarter results provided more evidence that higher margins are achievable.

R.J. Hottovy, CFA

Jul 27, 2018

Mentioned: Amazon.com Inc (AMZN)

Even the most ardent Amazon bear would have a hard time finding negatives from its second-quarter update, as Amazon Web Services, advertising services, third-party sales, and Prime memberships are each contributing to an increasingly visible long-term cash flow story.

With greater visibility for some of Amazon's highest-margin categories, we now think 8% operating margins are achievable over the next five years (assuming top-line growth in the low to mid-20s) and plan to raise our fair value estimate to $2,200 from $1,900.

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R.J. Hottovy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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