Editing Amazon.com, Inc.

Amazon's mission is to be the most customer-centric company, the best employer, and the safest workplace on Earth.  

 

# Infrastructure as a Service (IaaS): This service allows users to access virtual servers, storage, and networking capabilities, eliminating the need for physical hardware.

# Platform as a Service (PaaS): This service provides users with the ability to develop applications using pre-configured platform templates.

# Software as a Service (SaaS): This service enables users to utilize specific applications without the need for outright purchase or installation.

# Amazon Prime Video: A streaming service featuring an expansive library of movies and TV shows, offering both popular hits and Amazon's original productions.

# Amazon Music: A platform catering to music enthusiasts, streaming a diverse selection of songs across various genres.

# Kindle: A dedicated platform for book lovers, delivering a vast collection of e-books spanning numerous categories, from contemporary fiction to academic texts.

Amazon's core business lies in e-commerce retail, encompassing the sales of a diverse array of consumer goods via its eponymous online platform. This includes a vast assortment of items such as electronics, books, clothing, and home goods. In 2022, Amazon's online storefronts achieved an impressive revenue of $220 billion. <!-- The word 'impressive' is a relative term. Impressive how? -->  

[[File:Image111111111111.png|left|thumb]]Andy Jassy, the CEO of Amazon, is a visionary leader whose exceptional expertise and strategic acumen have played a pivotal role in shaping the company's success. With an impressive tenure at Amazon, Jassy has demonstrated unwavering commitment to innovation and customer-centricity, driving Amazon's transformation into a global tech giant. Known for his sharp intellect, Jassy possesses a deep understanding of the evolving technology landscape and has been instrumental in the growth of Amazon Web Services (AWS), Amazon's cloud computing division. His visionary leadership and ability to navigate complex challenges have garnered admiration, as he consistently fosters a culture of relentless innovation and high standards. Under Jassy's guidance, Amazon continues to expand its reach and redefine the boundaries of what is possible, making him a respected and influential figure in the tech industry.  

 

[[File:Image12213.png|left|thumb]]Brian T. Olsavsky joined Amazon.com in April 2002. As CFO of Amazon.com, he oversees the company's overall financial activities, including controllership, tax, treasury, analysis, investor relations, internal audit and financial operations. Prior to becoming Senior Vice President and CFO in June 2015, he served as Vice President, Finance and CFO for the Global Consumer Business. In his role as Vice President, Finance and CFO for the Global Consumer Business, Mr. Olsavsky had oversight and responsibility for the finance team supporting Amazon.com websites, merchant services, and fulfillment operations and subsidiaries. From 2007 to 2010, Mr. Olsavsky was Vice President, Finance for Amazon's North America retail business unit and acquisitions, and from 2002 to 2007 Mr. Olsavsky led the finance departments for Amazon's Worldwide Operations organization. Prior to joining Amazon.com, Mr. Olsavsky spent seven years at Fisher Scientific, where he held a variety of financial and business management roles, and a total of eight years at BF Goodrich and Union Carbide, where he held a variety of financial and operational roles. Mr. Olsavsky received a BS in Mechanical Engineering from Penn State and an MBA in Finance from Carnegie Mellon University.  

 

[[File:Image5555.png|left|thumb]]Adam N. Selipsky is the CEO of Amazon Web Services (AWS), the world’s most comprehensive and broadly adopted cloud. He also leads Worldwide Sustainability for Amazon, overseeing efforts to scale and drive Amazon’s adoption of renewable energy, path to net-zero carbon emissions, and other company-wide initiatives. Having previously led AWS Marketing, Sales, and Support from its infancy, Selipsky was instrumental in launching and growing AWS from a startup into a multi-billion-dollar business. In 2016, Selipsky left to become president and CEO of data visualization pioneer Tableau Software, where he led the company through its acquisition by Salesforce in what was the third-largest software industry acquisition at the time, before returning to AWS in 2021. Selipsky is a member of the World Economic Forum Information, Technology, and Communications governors, and serves on the Harvard Business School Dean’s Advisory Board. He has an AB in government from Harvard University and an MBA from Harvard Business School.  

 

We obtained the average year-on-year growth rate by using revenue figures from 2018 to 2022. This growth rate was then utilised to project the expected revenues from 2023 to 2027. In a similar fashion, we used the average growth in taxes (as a percentage of EBIT) from the past years to forecast future taxes. As for other financial statement components, their growth was analysed and forecasted as a percentage of the projected revenue.

!'''Income Statement'''  

|628,566

|768,693

|940,058

|1,149,626

|1,405,914

|22.29%

|22.29%

|22.29%

|22.29%

|22.29%

|

|

|12,717

|14,742

|22,824

|24,941

|13,511

|14,156

|14,832

|15,541

|16,283

|17,061

|''% sales''

|5.46%

|5.26%

|5.91%

|5.31%

|2.63%

|4.78%

|4.78%

|4.78%

|4.78%

|4.78%

|Taxes

|1,197

|2,374

|2,863

|4,791

|style="color: red;" |(3,217)

|style="color: red;" |(3,410)

|style="color: red;" |(3,615)

|style="color: red;" |(3,833)

|style="color: red;" |(4,063)

|style="color: red;" |(4,307)

|''% EBIT''

|9.41%

|16.10%

|12.54%

|19.21%

|style="color: red;" |(23.81)%

|6.01%

|6.01%

|6.01%

|6.01%

|6.01%

|

|

!'''Cash Flow items'''

|15,341

|21,789

|25,251

|34,296

|41,921

|45,040

|48,392

|51,993

|55,861

|60,018

|''% of sales''

|6.59%

|7.77%

|6.54%

|7.30%

|8.16%

|7.44%

|7.44%

|7.44%

|7.44%

|7.44%

|''% of Capex''

|style="color: red;" |-6.01%

|style="color: red;" |-10.40%

|0

|Changes in NWC

|style="color: red;" |(1,043)

|style="color: red;" |(2,438)

|13,481

|style="color: red;" |(19,611)

|style="color: red;" |(20,886)

|style="color: red;" |(20,593)

|style="color: red;" |(20,304)

|style="color: red;" |(20,019)

|style="color: red;" |(19,738)

|style="color: red;" |(19,461)

|''% of sales''

|style="color: red;" |-0.45%

|style="color: red;" |-0.87%

|3.49%

|style="color: red;" |-4.17%

|style="color: red;" |-4.06%

|style="color: red;" |-1.40%

|style="color: red;" |-1.40%

|style="color: red;" |-1.40%

|style="color: red;" |-1.40%

|style="color: red;" |-1.40%

|''% of change in sales''

|style="color: red;" |-5.12%

|style="color: red;" |-23.41%

|style="color: red;" |-47.30%

|style="color: red;" |-15.76%

|style="color: red;" |-15.76%

|style="color: red;" |-15.76%

|style="color: red;" |-15.76%

|style="color: red;" |-15.76%

|-

|1,405,914

|20.45%

|37.62%

|21.70%

|9.40%

|22.29%

|22.29%

|22.29%

|22.29%

|22.29%

|

|

|12,717

|14,742

|22,824

|24,941

|13,511

|14,156

|14,832

|15,541

|16,283

|17,061

|''% margin''

|5.46%

|5.26%

|5.91%

|5.31%

|2.63%

|4.78%

|4.78%

|4.78%

|4.78%

|4.78%

!11,520

!12,368

!19,961

!20,150

!16,728

!17,567

!18,448

!19,374

!20,346

!21,368

|

|style="color: red;" |(51,042)

|style="color: red;" |(40,935)

|style="color: red;" |(36,659)

|-

|style="color: red;" |(12.38)%

|style="color: red;" |(1,043)

|style="color: red;" |(2,438)

|style="color: red;" |(19,611)

|style="color: red;" |(20,886)

|style="color: red;" |(20,593)

|style="color: red;" |(20,304)

|style="color: red;" |(20,019)

|style="color: red;" |(19,738)

|style="color: red;" |(19,461)

|-

|style="color: red;" |(1.40)%

|-

|Unlevered FCF

|14,477

|19,734

|style="color: red;" |(8,409)

|13,004

|15,890

|26,203

|36,101

|45,675

|55,010

|64,188

|

|

!Present value of FCF

Sources suggest a terminal growth rate within the 3-5% range. The DCF model employs an average estimate of 4%, but the full range is accommodated in the sensitivity analysis. This figure is used in calculating the terminal value, which, when discounted, results in a present terminal value of approximately $1.273 trillion.  

In calculating the DCF that forecasts the financial trajectory of a US-based company over the next five years, the risk-free rate is pegged at the US 5-year Treasury rate of 3.87%. This figure represents the monthly average rate spanning from January to July 2023.  

!Input value reason

|Here, the five-year US bond is used.

|

|

|

|

|

|4%

|

The market risk premium fluctuates between 4.2% and 5.2%, thus we employ an average of 4.7% for our calculations. The volatility of Amazon's stock price is viewed as being lower relative to the general market. This is reflected in its beta, which varies from 0.64 to 1.12, yielding an average of 0.88. Consequently, we derive a cost of equity of 8.01%. When this is combined with the cost of debt, which stands at 5.25%, we arrive at a weighted average cost of capital (WACC) of 7.74%.

In the process of discounting the future Free Cash Flow to its present value, the WACC serves as the discount factor. The count of years commences from 0.52. This calculation leads to a share price of $135.57, a summary of which is presented in the table below.

|Enterprise value ($):

|1,457,196

|(+) Cash ($):

|69,674

|(-) Debt ($):

|141,000

|Equity Value ($):

|1,385,520

|Shares (millions):

|Share Price ($):

|135.57

The closing share price for Amazon stocks on 6th July 2023 stood at $128.36.

We conducted a sensitivity analysis using a WACC range of 6.5% to 9.0%, and a terminal growth rate span of 2.5% to 5.0%.

|$132.60

|$116.65

|$103.90

|$98.62

|$93.47

|$84.79

|$77.45

|$150.57

|$130.40

|$114.72

|$108.34

|$102.18

|$91.93

|$83.40

|$174.53

|$148.08

|$128.24

|$120.35

|$112.83

|$100.50

|$90.42

|$208.08

|$254.14

|$201.28

|$182.67

|$166.05

|$140.90

|$122.04

A comparable trade analysis is conducted to establish a relative valuation for Amazon, supplementing the aforementioned absolute DCF valuation. The analysis takes into account key competitors, such as Alibaba and Ebay.  

!P/E

|Amazon.Com Inc

|21.36

|140.55

|-

|Alibaba Group Holding-Sp Adr

|6.96

|13.71

|Ebay Inc

|24,069

|10.02

|14.64

|Allegro.Eu Sa

|8,131

|17.73

|#N/A N/A

| -

|10.15

|-

|Verkkokauppa.Com Oyj

|14.63

| -

|34.66

|101.25

|Chewy Inc - Class A

|16,157

|62.47

|302.76

|Jd.Com Inc-Adr

|55,402

|10.04

|17.86

|Next Plc

|10,942

|10.67

|11.73

|Revolve Group Inc

|1,216

|14.35

|22.30

|1-800-Flowers.Com Inc-Cl A

|496

|7.20

|55.52

|Pdd Holdings Inc

|90,833

| -

|43.91

|Zalando Se

|7,090

|14.32

|178.73

|Zozo Inc

|6,250

|14.34

|21.88

! colspan="4" |Summary Statistics

|Minimum

|128

|6.96

|10.15

|Lower Quartile

|6,670

|10.20

|15.45

|Median

|10,503

|14.35

|28.38

|Upper Quartile

|39,735

|20.45

|89.82

|Maximum

|217,920

|62.47

|302.76

|Mean

|34,725

|18.83

|69.25

The EV/EBITDA ratio, a commonly used valuation metric, takes into account both debt and liabilities relative to the actual earnings. On the other hand, the P/E ratio serves as an effective tool to determine whether a stock is undervalued or overvalued compared to its industry peers.

 

The table provides a brief analysis of the ratios and market cap of the 15 companies in the analysis including their minimum/maximum, median, quartile and mean values.  

The mean EV/EBITDA obtained for the set of 15 companies in the analysis is 18.83, which results in a relatively valued share price of $100.30. The mean P/E ratio in the industry is 69.25 which results in a relatively valued share price of $108.02.