As Amazon.com, Inc. (NASDAQ:AMZN) gears up for its next earnings report, investors are eyeing more than its e-commerce performance.

Needham analyst Laura Martin recently highlighted the untapped potential within Amazon's portfolio, particularly focusing on Twitch, the live streaming platform.

Twitch, Martin opines, could bolster Amazon's valuation and offer a compelling reason for investors to stay bullish.

Martin reiterated a Buy rating for Amazon and raised the price target from $205 to $210. The Seattle-based company should be valued as a Services company rather than a Products company due to its expanding margins and the potential upside from generative AI (GenAI).

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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, Martin says.

Twitch: Amazon's $46 Billion Ace

One of the standout elements of Martin's analysis is the deep dive into Twitch, which she estimates to be worth $46 billion.

This valuation isn't just about Twitch's direct revenue; it also includes the broader demographic reach, higher lifetime values (LTVs), lower customer acquisition costs (CAC), and other strategic benefits Twitch brings to Amazon.

Martin believes that two-thirds of Twitch's value comes from these added benefits, making it a crucial asset in Amazon's portfolio.

Potential Valuation Multiple Expansion

Martin draws a comparison with her previous analysis of YouTube for Alphabet Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG), where she calculated that spinning off YouTube could add 8% (or $15 per share) to Alphabet's value.

In contrast, Twitch's integration into Amazon is seen as a strategic advantage that enhances Amazon's overall value. Martin's analysis suggests that Amazon's services revenue and margins, which include advertising, subscriptions, and Cloud services, are growing faster than its core e-commerce business.

This growth implies a potential valuation multiple expansion due to the high 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, understate Amazon's normalized economic earnings power.

By valuing each business within Amazon's portfolio every quarter, Martin provides a comprehensive view of the company's potential.

Martin's insights offer a fresh perspective on Amazon's value, highlighting the significant, yet often overlooked, contributions of Twitch.

With a raised price target and a strong Buy rating, Martin's analysis underscores the hidden value within Amazon's diverse portfolio, making a compelling case for investors to remain optimistic about the company's future prospects.

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