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Why Inc. Shares Could Fly to $400

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of  (NASDAQ: AMZN  ) gained slightly on Monday after Deutsche Bank reiterated its buy rating for the online retail gorilla.

So what: Along with the bullish note, analyst Ross Sandler reaffirmed his $400 price target on the stock, representing about 12% worth of upside to Friday's close. So while contrarian traders might be turned off by Amazon's price strength in recent months, Sandler's call could reflect a sense on Wall Street that the company's growth prospects -- driven mainly by its Amazon Prime membership service -- still aren't fully baked into the valuation.

Now what: Deutsche expects Prime to reach 100 million members in 2020 and be worth over half of Amazon's market cap. "Prime is arguably the most valuable and important growth trend for Amazon, representing around 50% of company GMV today," said Sandler. "At an estimated 32m customers (13% of total, growing at around 45% Y/Y) and high GMV but low contribution margin, the mix shift to Prime is critical to the AMZN investment thesis. Prime's value to Amazon is simple: 1) it creates a competitive moat around AMZN's e-commerce business, 2) it drives up loyalty and 3) Prime increases wallet share and captures higher customer LTV." When you couple those Prime-related prospects with Amazon's already-impressive scale advantages, it's tough to disagree with Deutsche's bullishness.

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  • Report this Comment On July 21, 2014, at 4:24 PM, dowtozero wrote:

    "Deutsche expects Prime to reach 100 million members in 2020 and be worth over half of Amazon's market cap."

    Assuming they charge $100/year for prime...that comes out to be $10 billion. How is that half the market cap??

    And these guys have jobs?

    ahh...never mind..they are predicting its market cap to be $20 billion. now that makes sense.

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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