Amazon.com
Covering Analyst: Scott Meyers
smeyers4@uoregon.edu
Business Overview
› Online retail operator through re-sales or third-party
› Emphasis on selection,
Price, and convenience
› Diversifying product mix to compete with new firms.
› Strength in cloud computing and e-book readers.
Media
› 32.64% of 2012 revenue
› Retail sales of books, movies, music, digital downloads,
software and video games.
› Kindle and e-Books are primary drivers
Electronics and Other Merchandise
› 63.23% of 2012 revenue
› Retail sales of items not included in media
› Less mature business segment
Other
› 4.13% of 2012 revenue
› Primarily generated from Amazon Web Services
› Fastest growing segment
Business Growth Strategies
› Market share
-price undercutting
-distribution expansion
› Organic growth
› International expansion
› Continued Acquisitions
Industry Analysis
› E-Commerce, Catalog and Mail Order House industry
› Global industry $1 trillion by 2016
› New state sales taxes decrease bottom line
› Growth:
-Proliferation of broadband access
-Lower prices, decreased shipping time
-Cloud-based software as a service
-Economic factors
Revenue Model
› Percentage of revenue
› Geographic
-International segment 50% of total over time
-Growth of industry relative to AMZN market share
› Product
-Other and Electronics and Merchandise are fastest growing
-Near future, media growth positive
Comparables
› Selected based on business model, growth rates, market
risk, capital structure, margins, size
› Google Inc. – 25%
› Apple Inc. – 20%
› Netflix Inc. – 30%
› eBay Inc. – 25%
Comparables Valuation
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Price Target
Current Price
Undervalued
Implied Price
Weight
585.30
35.00%
332.23
0.00%
103.75
25.00%
184.36
40.00%
55.16
0.00%
138.81
0.00%
$304.54
271.24
12.28%
DCF Assumptions
› COGS: % of sales, downtrend projections as distribution
and cloud services expand, margins increase.
› R&D: % of sales, uptrend as a percentage, largely in part
to a streaming duel with NFLX and increased cloudcomputing
› Depr. and Amort: Heavy investment into capex in near
future, but then downtrend into perpetuity.
› SG&A: % of sales, increase initially then decrease and
level off.
› Tax Rate: Higher initially as a result of increased sales tax,
but then downtrend towards industry average, 26%
Beta
Beta
SD
Implied Price
Weighting
Terminal Growth Rate
1.04
0.06
15.00%
3 year monthly
0.84
0.28
14.00%
302
2.0%
2.5%
3.0%
3.5%
4.0%
5 year monthly
0.84
0.21
15.00%
0.81
320.64
347.64
380.57
421.62
474.22
1 year daily
1.11
0.13
14.00%
0.91
289.99
311.76
337.81
369.53
409.03
5 year daily
1.07
0.03
14.00%
1.01
264.30
282.15
303.17
328.30
358.88
1 year daily hamada
1.06
14.00%
1.11
242.47
257.31
274.56
294.87
319.12
3 year daily hamada
1.15
14.00%
1.21
223.70
236.19
250.54
267.22
286.84
Amazon.com Inc. Beta
1.01
Adjusted Beta
3 year daily
DCF Valuation
Discounted Free Cash Flow Assumptions
Tax Rate
26.00% Terminal Growth Rate
Risk Free Rate
3.26% Terminal Value
Beta
1.01 PV of Terminal Value
Market Risk Premium
5.46% Sum of PV Free Cash Flows
% Equity
3.00%
180,995
110,078
30,557
97.11% Firm Value
140,635
% Debt
2.89% Total Debt
3,663
Cost of Debt
4.45% Cash & Cash Equivalents
CAPM
8.80% Market Capitalization
WACC
8.64% Fully Diluted Shares
Intermediate Growth Rate:
11,448
136,972
454
Implied Price
301.70
Current Price
271
Undervalued
11.23%
5.00%
2019E
2020E
2021E
2022E
2023E
$10,409
$10,929
$11,476
$12,049
$12,652
Final Valuation
Final Valuation
Comparable Analysis
70%
$304.54
DCF Analysis
30%
$301.70
Implied Price
$303.69
Current Price
$271.24
Undervalued
11.96%
Questions
Recommendation
› I recommend a buy for the Tall Firs portfolio.
› Amazon.com is a dominant force in a rapidly expanding
industry.