By Emily Bary
Needham says that Amazon’s Twitch business helps the company expand its audience and recognize synergies with Prime Video
Amazon.com Inc. does a lot of things, from running a massive e-commerce marketplace to operating a cloud-computing business to streaming movies and television shows through Prime Video.
But Needham analyst Laura Martin thinks investors should pay attention to Amazon’s (AMZN) Twitch live-streaming business, which she calculates to be worth $46 billion.
Twitch is best known for video-game streaming and is “the largest streaming platform for video gamers, by far,” according to Martin. The business has also branched out into other areas of live streaming, including e-sports competitions and musical broadcasts.
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The service makes money through advertising, as well as virtual goods, physical merchandise like apparel and subscriptions.
“A key reason that Twitch would be valuable if it were separately traded is because it dominates live-streaming,” Martin wrote. She called the business a “hidden gem” within Amazon.
The service is valuable to Amazon for reasons beyond just its direct revenue, in Martin’s view. Twitch’s user base is younger and more male than the overall Amazon audience, making it “primarily additive to [Amazon’s] ecosystem, which increases the audience from which [Amazon] can garner revenue streams,” she wrote.
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Additionally, she sees synergies between Twitch and other Amazon businesses, as Amazon can promote its Prime Video and music offerings through the service.
Martin noted that Amazon acquired Twitch for $970 million in 2014. The business capitalizes on a number of hot trends right now, such as the rising popularity of live streaming and sustained interest in anonymous live chatting, she highlighted.
She likens the company’s market dominance to that of Alphabet Inc.’s (GOOG) (GOOGL) YouTube, even though YouTube amassed more viewing hours last year (8.34 billion) than Twitch (5.16 billion), according to third-party data.
“YouTube has carved out the VOD (video on demand) space and Twitch has carved out the live-streaming space,” Martin wrote.
Fundamentally, she thinks some investors may be thinking about Amazon’s overall business in the wrong way.
“We believe that [Amazon] should be valued as a services company rather than a products company,” she wrote. “Services revenue and margins (including advertising, subscriptions and cloud) are far larger and growing faster than [Amazon’s] core e-commerce business. Services growth implies valuation multiple expansion owing to its high margins, we believe.”
Martin has a $210 target price on Amazon’s stock, up from $205 previously. She rates the stock a buy.
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-Emily Bary
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