An Amazon bull says the company's stock is his 'best idea' for 2019. Here's why (AMZN)

Jeff Bezos

Cowen Equity Research analyst John Blackledge called Amazon his "best idea for 2019."
Blackledge is bullish on all the major parts of the company's business.
He think its advertising and cloud efforts will drive sales and cash flow.
But he thinks even its older e-commerce business will give it a significant boost.

If you ask John Blackledge, a financial analyst at Cowen Equity Research, you can't find a better bet for next year than Amazon.

The company has numerous opportunities ahead of it that could boost its revenue and swell its profits, including not just widely watched areas like its cloud-computing business, but also more obscure ones, such as its business-to-business marketplace, Blackledge said Tuesday in a new research report. What's more, its stock is significantly undervalued, he said; Blackledge's price target of $2,250 a share is 37% higher than Amazon's current price.

"Amazon has multiple levers to drive further upside," Blackledge said in his report, in which he reiterated his "outperform" rating on the company's shares. He continued: "Amazon is our best idea for 2019."

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Blackledge is bullish on Amazon's prospects pretty much across the board. The company's overall revenue should grow at compounded annual growth rate of about 17% over the next five years, he said. He expects its earnings before interest, taxes, depreciation, and amortization— a widely watched measure among analysts that serves as a proxy for how much cash companies generate — to grow even faster, jumping 34% next year, 31% in 2020, and 25% on average over the next five years.

Amazon's advertising and cloud businesses are booming

Much of that growth will come from Amazon's nascent advertising business, he said. The company has collected a wealth of data on its consumers via its e-commerce site over the last 20-plus years. Other companies are eager to take advantage of that data to target Amazon's customers with ads, Blackledge said.

Amazon's ad business is on track to generate about $9 billion in revenue this year, he said. But because of that demand, it will be pulling in about $43 billion in sales by 2023, he said.

Even better for the company and its investors, it doesn't cost the company all that much to run ads, so as that business grows, so too will its cash flow and profits, he said.

The company will also benefit from Amazon Web Services, its cloud arm, Blackledge said. The growing number of companies moving their computing processes from their own data servers to cloud services such as AWS should continue to boost its sales, he said. AWS's revenue should grow by 31% on average over the next five years, he said. And because cloud services are generally less costly to operate than running an online store, Amazon's profits should boom as AWS becomes bigger, he said.

"AWS should enjoy years of secular tailwinds ... as further workloads migrate to the cloud," he said.

Don't underestimate the power of e-commerce

Many analysts have based their optimism about Amazon on AWS and its advertising business. But Blackledge has high hopes for its core e-commerce business too, even though the growth of that business has slowed of late.

On the consumer side, the company is poised to take market share away from incumbents in the apparel, grocery, and consumables sectors, he said. Amazon should also benefit as more consumers sign up for its Prime membership service, which offers free shipping and other perks. The number of US households with Prime is now 60 million, up 9% from a year ago. By contrast, the US has some 126 million total households.

About two-thirds of the US consumers who bought goods from Amazon in September were Prime members, and about 80% of Prime members buy goods from the site every month, according to Blackledge. What's more, they buy more frequently than non-members and purchase goods across more categories, he said.

"The impact of Prime and path for further penetration are perhaps under-appreciated," he said.

Amazon Business is becoming a big business

But the company has big e-commerce opportunities outside the US also, Blackledge said. Over the last five years, it opened up or made widely available its online store in India, Mexico, and Australia. The combined retail market in those countries is $1.8 trillion, giving the company plenty of room to generate new sales by taking share from traditional players.

Meanwhile, Amazon's business-to-business marketplace — where companies and organizations buy parts and other supplies from corporate vendors — is already growing rapidly. Amazon Business is on pace to have some $10 billion of goods sold through it this year, up from just $1 billion two years ago. And Amazon is quickly expanding the service; it's now available in seven countries, including Germany, France, the UK, and the US.

Amazon "is one of the few global companies capable of adding $100+ [billion] in addressable opportunity consistently by entering and scaling in massive domestic and/or [international] markets," Blackledge said.

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