Key Takeaways
- Recent price target upgrades for Amazon and Netflix by Piper Sandler underscore a broader shift in their corporate strategy, moving from aggressive top-line growth to a more disciplined focus on profitability and operational efficiency.
- Amazon’s value proposition is increasingly driven by the high-margin advertising business, which is on a trajectory to rival AWS in profitability, alongside significant cost reductions from its regionalised fulfilment network.
- Netflix is successfully evolving its model beyond pure subscriber acquisition, with growing average revenue per user (ARPU) from its advertising tier and strategic, albeit nascent, expansion into high-engagement areas like live sports and gaming.
- Both companies are exhibiting characteristics of mature technology firms, prioritising free cash flow and capital returns, which warrants a re-evaluation of their place in portfolios beyond a simple ‘growth’ allocation.
Recent price target revisions from Piper Sandler, which saw Amazon (AMZN) raised to $220 and Netflix (NFLX) to $765, are more than simple acknowledgements of strong performance.1,2 They reflect a fundamental evolution in two of technology’s most formidable players. Both companies are now firmly in their second act, transitioning from growth-at-any-cost disruptors to mature, multi-faceted enterprises engineered for profitability and durable free cash flow. This shift demands a more nuanced analysis than simply looking at top-line momentum; the real story is one of operational leverage, expanding margins, and the monetisation of deeply entrenched ecosystems.
Amazon: The Emerging Three-Pillar Profit Engine
For years, the investment thesis for Amazon was a straightforward narrative balancing retail scale against the high-margin engine of Amazon Web Services (AWS). While still central, this view is becoming incomplete. The company is now clearly operating as a three-pillar entity, with advertising emerging as a formidable contributor to profitability. This structural shift is the primary driver behind renewed analyst optimism.
From Fulfilment Cost to Efficiency Gain
The narrative around Amazon’s retail operation has pivoted from one of relentless expansion to one of impressive optimisation. The multi-year project to regionalise its fulfilment network is now bearing significant fruit, reducing transport distances and costs. In its most recent quarterly report, Amazon’s operating margin in its North America segment demonstrated this leverage, expanding significantly year-over-year. This is not a temporary improvement but a structural change that provides a higher floor for profitability, even in a competitive retail environment.
Advertising: The Quiet Giant
Amazon’s advertising business has become its most compelling, and perhaps most underappreciated, growth story. With revenues growing in excess of 20% year-over-year, it is no longer a peripheral activity.3 As a high-margin revenue stream built on a foundation of unparalleled consumer purchase-intent data, its contribution to operating income is becoming profound. Investors who still view Amazon as a low-margin retailer with a cloud business attached are missing the emergence of a third profit engine that could, in time, rival the profitability of AWS.
Netflix: Beyond the Subscriber Count
Netflix has navigated its own maturation, moving decisively past the era where subscriber growth was the sole metric of success. The new algorithm for value creation is centred on increasing the average revenue per user (ARPU) and deepening user engagement through a broader entertainment offering.
The Ad Tier as a Strategic Masterstroke
The introduction of the advertising-supported tier and the crackdown on password sharing were executed with remarkable success. Far from causing a user exodus, these moves have expanded the total addressable market and created a powerful new revenue stream. The ad tier allows Netflix to capture more price-sensitive consumers globally, while simultaneously building an advertising business that leverages its vast viewership. The focus has successfully shifted from chasing user volume to maximising the value of its existing and future user base.
Laying the Groundwork for Act Three: Gaming and Live Events
While still in its early stages, Netflix’s foray into gaming and live events represents a strategically sound expansion of its ecosystem. Securing the rights to National Football League (NFL) Christmas Day games is a clear signal of intent to compete for high-value, appointment-viewing content.4 This, combined with a growing library of mobile games included in subscriptions, aims to increase user ‘stickiness’ and time spent within the Netflix environment, creating more opportunities for monetisation and reducing churn in an increasingly crowded streaming market.
A Comparative Glance at Maturing Giants
Placing the two companies side-by-side reveals distinct paths to generating shareholder value, though both are rooted in leveraging dominant market positions to enhance profitability.
| Metric | Amazon (AMZN) | Netflix (NFLX) | Commentary |
|---|---|---|---|
| Forward P/E Ratio | ~38x | ~32x | Both trade at a premium, but valuations reflect expectations of continued earnings growth and margin expansion. |
| Operating Margin (TTM) | ~7.8% | ~25.1% | Netflix’s asset-light model yields higher margins, but Amazon’s are expanding rapidly from a lower base due to operational leverage. |
| Key Profit Driver | AWS, Advertising, Retail Optimisation | ARPU Growth (Ads), Content Scale | Amazon’s drivers are more diversified, while Netflix is focused on monetising its core streaming asset more effectively. |
| Strategic Expansion | AI Services (AWS), Healthcare | Live Sports, Gaming | Both are seeding future growth, with Amazon targeting large enterprise sectors and Netflix focusing on deeper entertainment engagement. |
Note: Financial metrics are approximate and based on data as of early Q3 2024.
A Forward-Looking Hypothesis
The upgrades from Piper Sandler are a lagging indicator of a strategic reality that has been unfolding for several quarters. These are no longer pure growth stocks but are transforming into quality compounders. For investors, this means the risk-reward profile is changing; the potential for explosive, multiple-expanding growth is being replaced by the prospect of more predictable, margin-driven earnings growth and meaningful capital returns.
As a speculative hypothesis: The market currently values Netflix as a pure-play media company. However, if its live sports and gaming initiatives achieve meaningful scale over the next 24 months, we could see a narrative shift where analysts begin to assign a separate, higher multiple to these interactive segments. Much like the market eventually began to value AWS separately from Amazon’s retail arm, a successful “unbundling” of Netflix’s valuation into ‘media’ and ‘interactive’ components could be the catalyst for the next significant re-rating, driving its valuation far beyond what current streaming-centric models imply.
References
1. Investing.com. (2024, July 22). Piper Sandler Lifts Price Target on Amazon to $220. Retrieved from professional news terminals.
2. Investing.com. (2024, July 19). Netflix stock price target raised to $765 at Piper Sandler. Retrieved from professional news terminals.
3. Amazon.com, Inc. (2024). Q2 2024 Earnings Release. Retrieved from Amazon Investor Relations.
4. Sherman, A. (2024, May 15). Netflix to stream two NFL Christmas Day games this year. CNBC. Retrieved from https://www.cnbc.com/2024/05/15/netflix-to-stream-two-nfl-christmas-day-games-this-year.html
5. StockMKTNewz. (2024, July 22). [Post showing Piper Sandler raising AMZN price target]. Retrieved from https://x.com/StockMKTNewz/status/1815414354843709533
6. StockMKTNewz. (2024, January 24). [Post showing Piper Sandler raising NFLX price target]. Retrieved from https://x.com/StockMKTNewz/status/1750160222620942691
