AMZN: Stifel Ups Rev Estimate; Video Subscription Coming?

Stifel Nicolaus’s Jordan Rohan this morning reiterates a Buy rating on shares of Amazon.com (AMZN) and a $265 price target, after raising his 2012 estimate to $67.2 billion in revenue from $64.9 billion, wiring that the company’s “Kindle Fire” tablet is poised to make Amazon the “third ecosystem” next to Google’s (GOOG) Android platform and Apple’s (AAPL) iOS software.

Amazon is to report Q4 results tomorrow.

Rohan thinks the Fire will hurt Amazon’s profit margin, but he also thinks this is baked in the stock at this point. He cut his EPS estimate for this year to $2.27 per share from $2.43 previously.

The Kindle family of devices “has broader implications than most appreciate,” writes Rohan.

“Tablets including iPad and Kindle Fire are rapidly taking share from PCs and notebooks. Kindle Fire has staked out an important market position due to its loyal Amazon customer base and attractive (low) device pricing. We believe the lower hardware price will correlate with high e-book and video content attach rates.”

Rohan offers that a subscription�video service a la Netflix (NFLX) is “the next logical step.”

“This will likely be in addition to the on-demand pay model, and Prime Free Videos service. Amazon continues to move to consolidate retail shopping and BMV consumption at all touch points for its customers.”

Amazon shares today are down $2.80, or 1%, at $192.57.

Update: Seeing as at least one reader was curious as to the price target methodology, note the following from Rohan’s report:

Our $265 target is based on blended approach applying multiples of 1.4x sales and 4% free cash yield on 2013 estimates. The sales multiple is based on Amazon average rolling forward sales multiple for past two years (range of 1.1x to 2.1x) and higher-growth/successful retail multiples. While the free cash multiples might appear aggressive, our estimates assume a 36% CAGR revenue growth through 2013 with a mere 3.5% PF op margin by 2013. From 2010 to 2013 we estimate free cash will increase at a 27% CAGR to $10 per share