NEEDHAM: Amazon's stock is going a lot higher from here

In the last year, Amazon's stock has leaped from $600 to $900.

However, it's just getting started, according to Needham & Company analyst Kerry Rice, who is setting his price target at $1,100.

In a note circulated to clients April 10, Rice upgraded Amazon to "Buy" from "Hold" and wrote, "We believe Amazon's established dominance in U.S. is sustainable with Prime, mobile penetration and third-party growth."

Rice says that Amazon is growing at 30% a year, double then industry average, thanks in large part to Amazon Prime.

According to research firm Consumer IntelligenceResearch Partners, Amazon has about 65 million Prime members in U.S. Considering that most households share one Prime account that means that approximately half of all US households have Prime, that's up from less than 5% in 2011, Rice says. Prime members spend about double what non-Prime members spend each year and 80% of them shop on Amazon every month.

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Additionally, Amazon is by far the most used e-commerce app. About 76% of consumers have the app versus the next competitor, Walmart, which is used by about 33% of consumers. Americans shop online about 67% of the time, giving Amazon a pretty big advantage.

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What most people don't realize is that third-party selling, which makes up 49% of sales, is more profitable for Amazon. That number is expected to overtake first-party sales this year. There are now over 100,000 sellers on Amazon that do more than $100,000 in business each year. Needham estimates third-party revenue grew 41% in 2016, compared to first-party growth of 23%.

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Needham is excited about Amazon's growth potential as it expands into new markets such as Australia, Brazil, China, India, Southeast Asia, and many others. Rice says that Amazon has gotten very proficient at international rollouts and is successful by picking one area to focus on at first in each new market, such as books or electronics.

Additionally, Needham thinks that Amazon may beat out Netflix to be the worlds largest international video streamer, saying:

If Prime Video gains traction internationally in a similar fashion as Netflix's international expansion, one could expect the service to reach 20 million subscribers and over $1 billion in revenue by the end of 2020 (Figure 10). We believe Prime Video could ramp faster than Netflix's international growth given that Prime Video launched simultaneously in more than 200 countries, compared to Netflix, which gradually expanded its service from Canada to Latin America to Europe to rest of the world over 6 years.

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Finally, Rice notes the importance of Amazon Web Services:

In 2016, AWS generated revenue of $12 billion, up 55% y/y, representing 9% of Amazon's total revenue and 15% of its total revenue growth. While the revenue growth is expected to slow down given its increasing scale, we expect it to continue grow 30-50% until 2020.

All of that adds up to the stock going a lot higher from here, Rice says.

Click here for a real-time Amazon chart

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