Amazon.com, Inc. (AMZN) Valuation Report

Intrinsic Value
$474B

Value Per Share
$45 -74%

Price Target
$49 -72%

Market Cap
$1.8T

Enterprise Value
$1.8T

Price
$173.11 -0.25%

Adjusted Yield
-1.3%

TTM Growth Margin Ratio Yield
Revenue $575B 11.8% 3.1x
Gross $270B 19.9% 47.0% 6.6x
EBITDA $88B 60.3% 15.4% 20.3x
EBIT $37B 200.9% 6.4% 48.5x 2.1%
Profit $30B 1217.7% 5.3% 59.1x 1.7%
FCFF -$16B 71.7% -2.7% -113.6x -0.9%
FCFE $4.2B 120.3% 5.9% 424.7x 0.2%
Cost of Equity = 9.1% | Cost of Capital = 9.0%Currency: USD | Updated:
Sector: Consumer Cyclical | Industry: Internet Retail | Read more...

Amazon.com, Inc.
engages in the retail sale of consumer products and subscriptions through online and physical stores in North America and internationally.
The company operates through three segments: North America, International, and Amazon Web Services (AWS).
Its products offered through its stores include merchandise and content purchased for resale; and products offered by third-party sellers The company also manufactures and sells electronic devices, including Kindle, Fire tablets, Fire TVs, Rings, Blink, eero, and Echo; and develops and produces media content.
In addition, it offers programs that enable sellers to sell their products in its stores; and programs that allow authors, musicians, filmmakers, Twitch streamers, skill and app developers, and others to publish and sell content.
Further, the company provides compute, storage, database, analytics, machine learning, and other services, as well as fulfillment, advertising, and digital content subscriptions.
Additionally, it offers Amazon Prime, a membership program.
The company serves consumers, sellers, developers, enterprises, content creators, and advertisers.
Amazon.com, Inc.
was incorporated in 1994 and is headquartered in Seattle, Washington..

Full-time employees: 1,525,000 | HQ: Seattle
Website: https://www.amazon.com

Valuation

Input

Revenue Growth

EBIT Margins

Reinvstment Efficiency

Cost of Capital

Tax

AMZN Valuation Output

Terminal value

$744B

+ PV Terminal Value

$319B

+ PV FCFF

$145B

= Sum of PV

$464B

+ Cash

$87B

- Debt

$77B

= Intrinsic Value

$474B

Value Per Share

$45

Overvalued by 74% vs its $173 Price

1-Year Price Target

$49 (-72%)

10-Year Fundamental Projections for Amazon.com, Inc. (AMZN)
YearGrowthSalesEBIT %EBITTaxNOPATReinvestmentROICFCFFWACCPV FCFF
TTM 9.9% $575B 6.4% $37B 15% $31B $21B 16% -$16B 9.0% --
2025 9.9% $632B 6.4% $40B 15% $34B $19B 16% $15B 9.0% $14B
2026 9.9% $694B 6.4% $44B 15% $38B $21B 16% $17B 9.0% $14B
2027 9.9% $763B 6.4% $49B 15% $42B $23B 16% $19B 9.0% $14B
2028 9.9% $838B 6.4% $54B 15% $46B $25B 16% $20B 9.0% $14B
2029 9.9% $921B 6.4% $59B 15% $50B $28B 16% $22B 9.0% $15B
2030 8.8% $1T 6.4% $64B 17% $53B $34B 16% $20B 8.9% $12B
2031 7.7% $1.1T 6.4% $69B 18% $56B $32B 15% $24B 8.8% $13B
2032 6.5% $1.1T 6.4% $74B 20% $59B $29B 15% $30B 8.7% $15B
2033 5.4% $1.2T 6.4% $78B 22% $61B $26B 14% $35B 8.6% $16B
2034 4.3% $1.3T 6.4% $81B 23% $62B $22B 14% $40B 8.5% $17B
♾️ 4.3% $1.3T 6.4% $84B 25% $63B $32B 8.5% $31B 8.5% --
How is AMZN's expected return calculated?

The expected return is a percent (%) estimate of how much a stock's value will change per year. It is used to calculate AMZN's 1-year price target by multiplying the stock's present value with (1 + expected return). The expected return is calculated using a stock's risk (cost of capital), excess returns, and dividend yield.

Expected Return = (1 + Cost of Capital) * (Cost of Capital * (1 + ROIC - Cost of Capital - Dividend Yield))
10.4% = 109.0% * (9.0% * 106.5%)

We exclude dividend payments because they aren't reflected in a stock's price. Note that excess returns are highly dependant on our estimate of invested capital and its return. Neglecting to capitalize expense items such as operating leases, R&D, brand name marketing expenses, may inflate the excess return estimate.

Growth

In the 12 months ending Q4'23 Amazon.com, Inc. (AMZN) grew revenues by 11.8%, from $514B to $575B - indicating an acceleration of revenue growth. AMZN has a 5-year and 3-year revenue compound annual growth rate (CAGR) of 15.4% and 7.0% respectively.

Revenue Growth Estimates

Sustainable
8.2%
Fundamental
-32.4%
Priced-in
-21.2%

Bottom Line Growth Estimates

Fundamental Earnings Growth
0.2%
Fundamental EBIT Growth
15.2%
Priced-in FCFF Growth
9.9%

Looking at forward estimates, we can see that the market is pricing-in a -21.2% long-term revenue growth rate, while the financials indicate a future revenue growth rate between 8.2% and -32.4%.

Using the average of these 3 estimates we get a -15.1% long-term revenue growth for AMZN.

What is AMZN's sustainable revenue growth?

Similar to fixed vs variable costs, the sustainable growth rate shows how much we can expect the company to grow based on their reinvestment into the business, excluding variable demand and pricing. This rate may be helpful as a long-term baseline for the company.

(AMZN) has invested $192B in total capital, consisting of $202B in book value of equity, plus $77B in total debt, less $87B in cash & equivalents.
By adding on the average reinvestment of $31B in the last 4 quarters on a TTM basis to the $192B capital base, and applying the current sales to capital ratio of 299.6%, we can expect the company to grow its revenue to $669B, implying growth of 16.4%. However, we assume at least one gap year for CapEx to transform into growth, so we divide the rate by 2 and get a 8.2% sustainable revenue growth.
Use your own judgement based on the type of business since it takes time for reinvestment to yield growth.

What are AMZN's fundamental revenue & EBIT growth rates?

The fundamental growth rates analyze how much (AMZN) is reinvesting into the business, adjusted for the quality of those reinvestments to come up with an estimate for a long-term future growth. Both fundamental and sustainable gorwt rate estimates attempt to use fundamentals in estimating growth.

Amazon.com, Inc. (AMZN) has reinvested an average of $31B on a rolling TTM basis, reflecting a reinvestment rate of 98.3%, calculated as:
Reinvestment / (EBIT - Tax) a.k.a. NOPAT.
By multiplying the reinvestment rate with the return on invested capital (ROIC) we get a long-term estimate for a growth in EBIT:
98.3% * 15.5% = 15.2% (Reinvestment rate * ROIC)

In order to convert this to a fundamental revenue growth rate, we analyze the relationship between EBIT growth and Revenue growth, and come up with a scaling factor of -213.1%. We then multiply the fundamental EBIT growth estimate by the revenue scaling factor and get an equivalent for a fundamental revenue growth rate of -32.4%.

What FCFF & revenue growth rates is the market pricing-in for AMZN?

In order to justify the current $1.8T market capitalization given a 9.0% cost of capital, AMZN needs to keep growing its un-levered free cash flows by 9.9% across many ( >10 ) years.

AMZN's market implied FCFF growth rate of 9.9% =
1 + (Enterprise Value * Cost of Capital - FCFF) / (Enterprise Value + FCFF) =
1 + ($1.8T * 9.0% - -$16B) / ($1.8T + -$16B)

By analyzing the relationship between EBIT growth and revenue growth, we get a scaling factor of -213.1% that we apply to our implied FCFF growth in order to get the market implied revenue growth rate of -21.2%

Margins

Gross
47.0%
7.3% YoY
EBIT
6.4%
169.1% YoY
Profit
5.3%
-1099.5% YoY
FCFF
-2.7%
74.7% YoY
Why is AMZN scaling revenues by 6.3% relative to COGS?

AMZN grew revenue by 11.8% in the last 12 months, and their COGS changed by 5.5% in the same period. This means that the company is scaling revenues 6.3% better than costs.

A company that has a scaling rate above 1:1 indicates efficient growth that may translate into added value in the bottom line. Conversely, if the rate is lower, e.g. 1:0.9, it shows that while the company managed to grow, their costs increased more than revenues.

Free Cash Flows

Reinvestment
-$21B
FCFF
-$16B
FCFE
$4.2B
Net CapEx
-$9.9B
Simple FCFF
$32B
Change in WC
-$12B

Note: cash flows in the table and chart are presented as inflows and outflows, meaning that positive numbers indicate how much a company has taken in, and negatives show how much cash has flown out.

What is included in AMZN's $59B capital expenditures?

In the last 12 months AMZN invested $53B in plant property & equipment (PPE) CapEx. By adding the $5.8B in acquisition expenses, we get a total CapEx of $59B.

How much is AMZN reinvesting into the business?

In the last 12 months ending Q4'23, AMZN made capital expenditures of $59B. By netting out the depreciation of $49B, we get a NetCapEx of $9.9B, indicating that the company invested in future growth.

Finally, we add on the change in Working Capital of $12B, and get a Total Reinvestment of $21B.

By investing more than it depreciates, AMZN is increasing its future growth assets.

How are AMZN's -$16B free cash flows to the firm (FCFF) calculated? AMZN's -$15,737,000,000.00 Free Cash Flows to the Firm (FCFF) =
$36,852,000,000.00 EBIT
- $4,975,500,000.00 Tax
- $52,729,000,000.00 Plant Property Equipment
- $5,839,000,000.00 Acquisitions
+ $48,663,000,000.00 Depreciation
+ -$11,541,000,000.00 Change in Working Capital
- $24,023,000,000.00 Stock Based Compensation

Free Cash Flows to the Firm are important because they indicate how much a company has left over for all (debt & equity) investors.
It is a measure of the true bottom line for investors, as opposed to earnings and the simplified version of free cash flows (Cash from operating activities - PPE).

In the last 12 months AMZN had -$16B in free cash flows. This means that the company still needs to grow the business or cut costs.

How are AMZN's $4.2B free cash flows to equity investors (FCFE) calculated? AMZN's $4,234,000,000.00 Free Cash Flows to the Equity (FCFE) =
$30,425,000,000.00 Net Income
- $52,729,000,000.00 Plant Property Equipment
- $5,839,000,000.00 Acquisitions
+ $48,663,000,000.00 Depreciation
+ -$11,541,000,000.00 Change in Working Capital
+ $77,259,000,000.00 Total Debt today
- $82,004,000,000.00 Total Debt one year ago

Free Cash Flows to the Equity investors show how much the company has left over for shareholders.
It is an insightful metric when paired with FCFF for analyzing companies that have a lot of debt, as it can reveal the effect of interest rates on the value of equity.

When compared to FCFF, they should be roughly in-line, else we need to think about what causes the difference. In the last 12 months AMZN had $4.2B in free cash flows to equity, indicating that the business can return capital in the form of dividends and buybacks.

Returns

ROE
15.1%
ROIC
15.5%
Sales to Cap
299.6%
How much excess returns (value) is AMZN creating on average (6%), and how to calculate it?

ROE Excess Returns 5.9% = Return on Equity - Cost of Equity
ROC Excess Returns 6.5% = Return on Capital - Cost of Capital

Average Excess Returns = (ROE - Cost of Equity + ROIC - Cost of Capital) / 2

For every 1% of growth in its net and operating income, the value of AMZN's stock changes by an average of 0.06%.

Excess returns are important because they help us estimate a company's target price.

If you are analyzing a company with a lot of R&D expenses, consider capitalizing them as an asset to get a better ROE & ROC estimate - You can use our automated spreadsheet.

Capital Structure

Equity
$202B
Debt
$77B
Cash
$87B
Interest Coverage
11.6x
Debt to EBITDA
0.88x
Debt to Capital
4.1%

Dividends & Buybacks

Adj. Yield
-1.3%
Dividends + Buybacks - SBC
FCFE Payout
--
% FCFE paid as Div + Net Buybacks
R-R Upside
--
FCFE yld. / Cost of Equity - 1

Amazon.com, Inc. has transferred a total value of -$24B to investors in the last 12 months. The required cash return (excluding expected growth) for AMZN is $87B, or a 4.9% yield in the same period.

With an adjusted payout of -567.4%, AMZN seems to be spending a potentially unsustainable amount of cash and may require financing if the financials don't improve.

SEC Filings

Examine the details and validate data:

Historical SEC Filings

Headlines