Date of Presentation: 3/15/2013
Sector: Technology
Amazon.com
Ticker: AMZN
Recommendation: Buy
Current Price: $271.24
Implied Price: $303.97
Investment Thesis
Key Statistics
Compan y Logo
52 Week Price Range
50-Day M oving Average
$267.33
1.01
Dividend Yield
N/A
Short Interest
Expansion of distribution and fulfillment centers will extend Amazon’s
global reach and effectively lower variable costs.

Lower margins have resulted in increased market share, which can be
leveraged going forward, especially with the rapidly evolving eBook
market.

Amazon has a strong position in the cloud-computing market, and continues
to innovate in order to maintain and enhance this position.

With the proliferation of broadband/ internet access, coupled with
improving economic conditions, the global E-Commerce industry is
estimated to reach $1 trillion by 2016.
$180.30-$284.72
Estimated Beta
M arket Capitalization

$116,224 billion
7.01 million
Trading Statistics
Diluted Shares Outstanding
454 million
Average Volume (3-M onth)
3,525,230
Institutional Ownership
67.90%
Insider Ownership
19.23%
Four-Year Stock Chart
$300.00
400,000,000
350,000,000
$250.00
300,000,000
$200.00
EV/EBITDA (LTM )
Margins and Ratios
Gross M argin (LTM )
250,000,000
31.68
$150.00
200,000,000
24.75%
150,000,000
$100.00
EBITDA M argin (LTM )
Net M argin (LTM )
6.00%
-0.06%
100,000,000
$50.00
50,000,000
Debt to Enterprise Value
Covering Analyst: Scott Meyers
0.03
$0.00
Sep-08 Mar-09
0
Sep-09 Mar-10
2957000
Sep-10 Mar-11
265.74
Sep-11 Mar-12
50-Day Avg
Sep-12
200-Day Avg
Email: smeyers4@uoregon.edu
1
University of Oregon Investment Group
University of Oregon Investment Group
Date of Presentation
Business Overview
Percentage of Total Revenue
4.13%
Media
32.64%
63.23%
Electronics and
Merchandise
Other
Amazon.com is one of the world’s largest online retail operators. The company
operates retail websites, which enable millions of unique products to be resold
by Amazon from vendors, or sold through third party sellers, from which
Amazon fulfills the order and collects a service fee. Websites can be accessed
directly or through mobile sites and apps. In addition to resale and third-party
distribution, Amazon has been diversifying it’s product mix. Amazon is
leveraging it’s Kindle device and becoming more vertically integrated by
offering captive products such as eBooks and digital media through the Kindle
platform, as well as by enabling authors, musicians and other creators to selfpublish and sell content through Kindle Direct Publishing and Amazon
Publishing. In addition, Amazon has further extended its business offerings by
becoming a front-runner in the public-cloud computing market. Amazon Web
Services(AWS) provides developers and enterprises access to technology
infrastructure that enables any type of business. Amazon segments it’s business
geographically and by product categories. Geographically, the company divides
it’s business into North America and International segments. From a product
standpoint, business is segmented into Media, Electronics and Merchandise, and
Other.
An essential component to Amazon’s business model is to offer customers
maximum selection, price and convenience. The increased proliferation of
internet access, especially through mobile applications has enabled consumers to
more efficiently and effectively purchase desired goods. Amazon strives to offer
customers the lowest prices possible through low everyday product pricing and
shipping offers. As Amazon expands fulfillment and distribution centers,
shipping time and costs will continue to decrease, drawing more customers.
Media – 32.64%
Revenue in this segment is generated from retail sales of all product categories
such as books, movies, music, digital downloads, software and video games.
Amazon’s Kindle device has been one of the primary revenue drivers in this
segment, and while the company does not disclose sales for FY’2012, the device
is attributed to the increase in operating income for the year. While the outright
sale of the Kindle is important, Amazon’s revenue model for the device is
focused on the perpetual sale of captive products run through the Kindle
platform, such as eBooks and music. CEO Jeff Bezos reported that eBooks are a
rapidly growing business segment for Amazon, increasing 70% last year.
Amazon has enhanced the features of the Kindle, incorporating a patented builtin light, called the “Kindle Paperwhite.” This feature provides illumination for
an enhanced reading experience for the customer. In addition, Amazon has
recently positioned itself to compete with Netflix by implementing digital video
streaming through the Kindle device for Amazon Prime subscribers.
Electronics and Other Merchandise – 63.23%
Revenue in this segment is driven by retail sales from sellers of items in
categories not included in Media, such as electronics and computers, devices,
home and garden, toys, kids and baby, grocery, apparel, shoes and jewelry,
beauty, sports, outdoors, auto and industrial. This is a less mature segment,
Amazon originated as a book retailer and later diversified into selling electronics
and general merchandise. While it makes up a significant portion of revenue, the
segment has room to grow. Particularly as distribution and fulfillment centers
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Date of Presentation
expand, exposure to a larger portion of third-party sellers will further increase
this segment’s percentage of total revenue.
Other – 4.13%
Revenue in this segment consists of non-retail activities such as Amazon’s
public-cloud program AWS, and marketing/promotional activities. AWS is the
market leader in cloud computing, ahead of Apple and Google, and is Amazon’s
fastest growing business segment. AWS offers infrastructure and application
services that enable enterprises to run everything in the cloud. AWS is an
important revenue driver for Amazon going forward because the system enables
businesses to replace up-front capital infrastructure expenses with lower variable
costs. AWS is estimated to be valued at $24 billion as a standalone business, and
is projected to increase Amazon’s margins going forward.
Strategic Positioning
As explained in further detail below, Amazon is continuously positioning itself
to increase it’s market share within the industry. This positioning primarily
involves price undercutting of competitors, expanding operations to achieve
economies of scale, and diversifying it’s product mix.
% of Supply Chain Executives
Analysis
Apple Inc. Amazon.com
Agility
33%
62%
Collaboration
31%
59%
Execution 38%
57%
Innovation 78%
19%
Overall
58%
37%
Amazon places heavy emphasis on providing customers with the largest
selection of products in it’s catalog. To do so, Amazon seeks to acquire other
firms who can fulfill this interest. The most evident example of a strategic
acquisition was the 2009 takeover of Zappos.com. Zappos added millions of
apparel and footwear products to Amazon’s catalog, giving it a distinct
advantage in the industry.
While Apple Inc. CEO Tim Cook is widely regarded as a supply chain guru, a
global poll conducted by SCM World last year indicated that 58% of more than
1,000 supply chain executives admired Amazon most overall for the way it
operates it’s supply chain. The poll was based upon agility, collaboration,
execution and innovation, with Amazon ranking higher in each category except
innovation.
Business Growth Strategies
Market Share
From a longer term perspective, a strong catalyst for Amazon’s business growth
will come from it holding a large portion of market share in an industry that will
continue to expand. Amazon currently holds about 40% of the E-Commerce,
Catalog and Mail Order House industry market share. This United States
industry is expected to reach $122 billion by 2018, driven by increased
broadband access, disposable income levels and other positive macroeconomic
factors. While Amazon currently holds the largest percentage of market share,
the company continues to increase it’s share through strategic positioning
activities. Amazon’s margins have taken a hit because the company has
intentionally priced each unit Kindle device so low that they are selling for a
loss. Amazon has intentionally lowered the sales price of the Kindle device to
attract more customers and gain market share over competitors such as Apple’s
Ipad. Not only does this initiative increase market share, but once Amazon has
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distributed numerous units of the Kindle device to customers, it can then
leverage this position through eBook, digital content, application and other
recurring purchases going forward. In addition, the nature of Amazon’s overall
business model encourages growth and increased market share.
Especially this past year, Amazon devoted substantial capital expenditures
towards expanding fulfillment and distribution centers globally. This expansion
is crucial to the company’s growth strategy because increasing the reach of
distribution cuts down shipping cost and time, which increases margins and
enables consumers to purchase from a wider catalog, for a more economic price,
and in a convenient manner. As Amazon expands and becomes even more
efficient, the company will continue to take market share and put pressure on
brick-and-mortar companies such as Barnes & Noble or Best Buy.
E-Commerce Market Share (US)
38.80%
Amazon
eBay
53.40%
Other
7.80%
Date of Presentation
Organic Growth
Amazon continues to expand upon existing products and add new products to
it’s mix. In regards to AWS, Amazon added an SAP Business Suite to it’s cloud
platform, which enables enterprises to leverage a pay as you go system, in which
users incur variable costs as opposed to costly capital expenditures on
underlying infrastructure. This enhancement further solidifies Amazon’s
dominance in the cloud-computing market, and significantly decreases it’s
enterprise customer’s operating costs. Amazon continues to put pressure on
Netflix and other streaming companies as it has also extended it’s digital
streaming portfolio, signing lease agreements with Turner Broadcasting, Warner
Bros. and A+E Networks. Amazon’s digital media selection has grown to over
23 million movies, TV shows, songs, magazines, books and audio books, up
from 19 million in 2011. Regarding it’s competition with Apple, Amazon
continues to grow it’s music media selection, announcing the launch of
AutoRip, a new service that gives customers free MP3 versions of CDs they
purchase from Amazon.
International Expansion
As previously stated, Amazon has made significant investments in expanding
distribution centers globally. The company opened up a research and
development center in London, focused on developing services for TVs, gaming
consoles, smartphones and PCs. This expansion represents penetration into a
previously weak market for the company. In addition, the company announced
the launch of an Appstore in Japan, giving Japanese customers access to a
selection of Android apps. Although the Kindle device has been a huge revenue
driver, sales have predominantly occurred within the domestic market. However,
in 2012, Amazon launched Kindle stores in Brazil, China, Canada and Japan.
This marks a huge step forward into untapped markets, particularly in China.
China is the world’s second largest E-Commerce market, which has been
dominated by local firm Dangdang Inc. Amazon is in discussion with Chinese
publishers on content deals, and hopes to launch the Kindle within two years.
Acquisitions
In 2009 Amazon acquired Zappos.com, a leader in online apparel and footwear
sales. Zappos’ catalog includes millions of clothing and shoe products, which
significantly expanded Amazon’s product offerings.
In 2012 Amazon acquired Kiva Systems, Inc. a leading innovator of material
handling technology. This represents an important acquisition as Amazon
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continues to expand fulfillment centers. Kiva’s warehouse solutions simplify
operations, reduce costs and increase flexibility.
Amazon recently announced that it will acquire leading text-to-speech
technology company IVONA Software. IVONA delivers several voice guide
and text features that will deliver accessibility features on the Kindle Fire.
Industry
Overview
Industry Average
Market Cap.($Mill.)
3056
Net Income($Mill)
1846
P/S
1.3
P/B
4.9
P/E
54.9
5-Yr Rev CAGR%
8.3
Med Oper. Margin %
-2195.8
Interest Coverage
-6630.5
D/E
0.6
Amazon is a dynamic company with reach into multiple industries. As evident
by Amazon’s extension into cloud computing with AWS, digital streaming
through Prime Instant Video, and it’s recent entrance into wine retail, the
company has and will continue to evolve and diversify it’s business segments to
gain a competitive advantage in the market. While Amazon does extend across
many different industries, it competes primarily within the E-Commerce,
Catalog & Mail Order House industry. This industry encompasses retail
businesses, whose primary activity is selling goods online. Company sales
platforms are either through online stores or auction sites. Top selling product
and service categories include travel, clothing and accessories, books, music,
videos, electronics and specialty foods. While traditional brick-and-mortar
operators have established websites, they are generally excluded from this
industry.
The industry has a medium level of capital intensity. Investments are primarily
devoted to warehouse space, computer equipment and warehouse staff. Firms
may also incur capital expenditure through purchasing and maintaining vehicles
for delivering goods. Expenditures on warehouse space and fulfillment centers
are of particular importance because of expansion into global markets, and the
demand for decreased shipping time. Expenditures on R&D are crucial so that
firms adapt to ever-changing software systems, internet speeds and security
systems.
Because the industry consists of mostly resellers, purchases account for a
significant amount of the firm’s cost structure. Purchases are estimated to
account for 71.8% of revenues in 2013. A majority of products sold are
manufactured abroad, which subjects company’s purchasing costs to fluctuating
exchange rates, resulting in a significant effect on bottom line performance.
Amazon and eBay are outliers in terms of market capitalization, as the industry
average is 3,056 million. In addition, the industry requires a higher level of debt
to finance operations, with an average debt-to-equity of 60%.
Legislation
Companies continue to face a legislative battle over tax laws in various states
that they operate in. Current laws require that transactions are only taxable in
states where the company has a physical presence. Amazon has struck deals
with several states such as California, Nevada and Pennsylvania to open
distribution centers in which sales taxes will be collected. The tax ranges from
7.25% to 9.75% depending on where a buyer is located. The presence of
taxation on E-Commerce businesses has a substantial impact on bottom line
performance, and forces companies to reposition themselves geographically.
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Growth Potential
By the nature of the industry, firm’s performance will grow with the increasing
proliferation of computer and broadband internet access. Particularly as shipping
times decrease, companies become more efficient and appealing in the eyes of
the consumer because online businesses have a wider product selection,
consumers can look for deals and comparison shop, and consumers receive their
purchase in minimal time. The number of American homes and businesses with
broadband access capabilities topped 90 million in 2012. Costs to obtain internet
access have declined in recent years, increasing the accessibility and likelihood
that consumers will turn to the internet for purchases. The most powerful trends
in the industry include access via wireless devices, migration of entertainment to
the web, and cloud-based software as a service. It is also important to note that
because of secure, convenient payment solutions such as Amazon’s “one-click
ordering,” consumers can more efficiently purchase goods online.
Economic factors play a significant role in E-Commerce demand. The industry
proved to be one of the most inelastic markets during the recession, as
consumers turned to online companies for price and comparison shopping.
Going forward, the United States industry is estimated to grow to $121.6 billion
by 2018, at an average annual rate of 1.9%. Growth is the result of several
economic factors. Increased disposable income and employment will revive
consumer sentiment, banks are slowly increasing their lending, savings rates are
low and spending is projected to increase going forward. Exchange rates have a
substantial effect on a firm’s performance, especially a company such as
Amazon, whose global segment is expected to be 50% of revenue in years to
come.
Competition
E-Commerce (US)
Revenue ($milion)
120,000
100,000
80,000
60,000
40,000
20,000
0
2004 2005 2006 2007 2008 2009 2010 2011 2012
Year
There are approximately 162,884 enterprises within the industry, of which
Amazon currently holds about 40% market share. Smaller companies make up
about half of the industry. Competition within the industry is largely determined
on reputation and price. While there are low barriers to entry, incumbents like
Amazon benefit from established brand equity, relationships with suppliers and
economies of scale. Larger firms in the industry maintain a competitive
advantage because of such high costs that would burden a new entrant
attempting to achieve a similar presence. Successful firms have a loyal customer
base to ensure continued sales, and also concentrate on superior post-sale
customer service. Shipment tracking, refunds, and user-friendly sites have a
strong effect on consumer preference. While Amazon’s business model is fairly
unique in relation to competition based on size, the company’s main competitors
include Apple Inc., eBay Inc., Netflix Inc., Google Inc., and Barnes & Noble
Inc.
Management and Employee Relations
Jeffrey P. Bezos – Chief Executive Officer and Chairman
Jeffrey Bezos founded Amazon.com in 1994. Mr. Bezos is also the founder of
aerospace company Blue Origin, a company that seeks to increase the safety of
spaceflight so that humans can better continue to explore the solar system. Mr.
Bezos graduated summa cum laude from Princeton University in 1986, with
degrees in electrical engineering and computer science. He was named TIME
Magazine’s Person of the Year in 1999.
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Thomas J. Szkutak – Chief Financial Officer
Prior to joining Amazon.com, Mr. Szkutak was chief financial officer for GE
Lighting, where he managed a division with $3 billion in annual revenue. Mr.
Szkutak joined Amazon.com in 2002 to serve the company as chief financial
officer and senior vice president. Mr. Szkutak received a BS in finance from
Boston University, where he graduated magna cum laude.
Management Guidance
Amazon’s business model is subject to exchange rate fluctuations, the global
economy and consumer spending. Each of these factors could materially affect
management guidance. In addition, guidance provided assumes that the
company does not include any additional acquisitions or investments. Amazon’s
management only provides guidance for the subsequent quarter, of which only
sales, operating income, stock-based compensation, and amortization of
intangible assets are included.
Amazon has a successful track record on meeting management’s expectations.
For FY’2012, management met guidance for both net sales and operating
income in each quarter. It should be noted that the range of guidance is fairly
narrow given the size of operations, and that guidance was only exceeded in one
quarter. For FY’13 Q1, management expects net sales of between $15 billion
and $16.6 billion, and operating income or loss to be between $285 million loss
and $65 million positive income. I believe these expectations to be attainable
given successful follow through in the past. In particular, CEO Jeffrey Bezos has
stated that the company is beginning to see success in the transition they
expected from their Kindle segment, in which the multi-billion dollar eBook
business is growing rapidly.
Recent News
“Amazon Rises After Sales, North American Margins Improve”
- Bloomberg 1/30/2013
Amazon has been heavily spending into new warehouses, seeking to drive down
transportation costs and increase its shipping network to draw even more
consumers. The margin growth illustrates that the investment is starting to pay
off, and the company will begin to see more profitability.
“Amazon Cloud Revenue Heads Higher as Google Plays Catch-Up”
- Bloomberg 3/7/2013
Amazon has become a front-runner in the cloud market, ahead of Google and
Microsoft. As a stand-alone company, Amazon’s AWS cloud segment could be
worth $24 billion. Having such a strong position in the cloud market will be an
important driver for the company going forward.
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“Amazon Surges to Record High on Global E-Commerce Growth”
-Bloomberg 1/7/2013
Through it’s expansion of distribution centers and an increased product catalog,
Amazon has positioned itself well to dominate the global E-Commerce market,
which is expected to reach $1 trillion by 2016.
Catalysts
Upside




Expansion of distribution centers extends the company’s reach and
effectively lowers variable costs.
Lower margins have resulted in increased market share, which can be
leveraged going forward
Strong positioning in the public-cloud market
Increased economic conditions will drive demand
Downside



Foreign exchange rates have a material impact on performance,
particularly with the emphasis on international expansion.
Governmental regulation and increased sales taxation
Increased competition as businesses rapidly evolve and intensify
Comparable Analysis
Netflix Inc. – 30%
“Netflix, Inc. provides Internet television network service that enables
subscribers to stream TV shows and movies directly on TVs, computers, and
mobile devices in the United States and internationally. The company operates
in three segments: Domestic Streaming, International Streaming, and Domestic
DVD.” – Yahoo! Finance
Netflix competes directly with Amazon in digital streaming segment. Netflix
was weighed the strongest comparable, because it’s EBITDA and EPS growth
expectations were the most similar to Amazon. While it’s size is vastly smaller
than Amazon’s, Netflix’s margins and overall market exposure align well.
Google Inc. – 25%
“Google Inc. is a global technology company focused on improving the ways
people connect with information. The Company generates revenue primarily by
delivering online advertising. As of December 31, 2011, the Company’s
business was focused on areas, such as search, advertising, operating systems
and platforms, and enterprise. Businesses use its AdWords program to promote
their products and services with targeted advertising. In addition, the third
parties that comprise the Google Network use its AdSense program to deliver
relevant advertisements that generate revenue. In June 2011, the Company
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launched Google+, a way to share online. As of January 2012, over 90 million
people had joined Google+.” – Reuters
Google was chosen as a comparable because of similar top line growth
expectations for 2013, long term debt, market risk, market capitalization and
market structure. Google is one of Amazon’s primary competitors, particularly
as it competes with Amazon’s Prime through it’s Google Shopping Express, as
well as it’s recent entrance into the cloud market.
eBay Inc. – 25%
“eBay Inc. provides online platforms, tools, and services to help individuals and
merchants in online and mobile commerce and payments in the United States
and internationally. Its Marketplaces segment operates ecommerce platform
eBay.com; vertical shopping sites, such as StubHub, Fashion, Motors, and
Half.com; and classifieds Websites, including Den Blå Avis, BilBasen,
Gumtree, Kijiji, LoQUo, Marktplaats.nl, mobile.de, Alamaula, eBay Anuncios,
eBay Kleinanzeigen, and eBay Annunci, as well as provides advertising
services.” – Yahoo! Finance
eBay is Amazon’s direct competitor within the industry. The company operates
with a very similar business model, and has taken on almost an equal amount of
debt. The two differ significantly in growth expectations and margins, but match
up well in terms of market capitalization and risk.
Apple Inc. – 20%
“Apple Inc., together with subsidiaries, designs, manufactures, and markets
mobile communication and media devices, personal computing products, and
portable digital music players worldwide.” – Yahoo! Finance
Amazon competes with Apple in several segments, primarily the mobile
application, media, and tablet markets. Apple is weighed the least of the
comparables because of disparate growth prospects and because Apple does not
possess any debt.
Discounted Cash Flow Analysis
Revenue Model
Intermediate Growth Rate:
Total revenue was projected using a geographic model and a product model. The
geographic model was broken down into Amazon’s two segments, North
America and International. The product model was broken down into Amazon’s
three product segments, media, electronics and other merchandise, and other.
Management guidance stated that on average, 35-38% of annual revenue is
generated in the fourth quarter. This historical trend is reflected in my
projections of FY’13 Q4 and FY’14 Q4.
5.00%
2019E
2020E
2021E
2022E
2023E
$10,409
$10,929
$11,476
$12,049
$12,652
The only geographical guidance provided by management was that over time the
International segment is projected to eventually reach 50% of total revenue.
Using guidance as a foundation, I projected International revenue to grow more
slowly in closer years as Amazon continues to expand abroad, and then growth
rates will increase as global operations become established and more efficient in
the terminal year. North American revenue was initially forecasted by
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calculating the growth of the industry relative to Amazon’s market share each
year. This number was then adjusted based upon my assumptions of
International segment growth, which is growing as a percent of total revenue.
Therefore, I estimated North American revenue to decrease as a percentage
going into the terminal year.
Implied Price
Adjusted Beta
Terminal Growth Rate
302
2.0%
2.5%
3.0%
3.5%
4.0%
0.81
320.64
347.64
380.57
421.62
474.22
0.91
289.99
311.76
337.81
369.53
409.03
1.01
264.30
282.15
303.17
328.30
358.88
1.11
242.47
257.31
274.56
294.87
319.12
1.21
223.70
236.19
250.54
267.22
286.84
While media constitutes a smaller percentage of total revenue, it is considered
Amazon’s mature segment. On the other hand, electronics and merchandise is a
larger percentage of revenue but is considered a less mature business segment,
along with “other.” I took these concepts as a basis when projecting revenues for
each segment going forward. Overall, media trends down over time, while
electronics and other merchandise, and other trend upwards as a percentage of
revenue. In the first two Undervalued/(Overvalued)
years, media growth remains positive to reflect
Terminal Growth
Rate
Amazon’s Kindle eBook business strategy.
In addition,
towards the end of
FY’2013, Microsoft and Sony are releasing new game consoles, which will
increase media revenues for the time being. “Other” is the fastest growing
segment because of the rapid development and expansion of AWS in the
industry. Electronics and other merchandise growth will be fueled by Amazon’s
expansion into global regions, of which it being the largest segment will have
leveraged exposure to untapped markets with third-party sellers.
Beta
To calculate the beta estimates for Amazon, I ran 5 regressions against the S&P
500 over different time intervals, to get an understanding of Amazon’s volatility
compared to the market. In addition, I calculated two hamada betas over
different time intervals to get a reflection of financial leverage on the risk of the
firms.
COGS
Cost of goods sold is expected to decline over time, and gross margin is
expected to increase, as Amazon leverages more fixed costs and reduces
variable costs with the expansion of fulfillment centers. The growth of AWS
will also contribute to increased gross margins.
Implied Price
R&D
WACC
Terminal Growth Rate
302
2.0%
2.5%
3.0%
3.5%
4.0%
8.44%
272.4
291.4
313.9
341.0
374.2
8.54%
267.7
286.1
307.7
333.7
365.4
8.64%
263.2
280.9
301.8
326.7
356.9
8.74%
258.9
276.0
296.0
319.9
348.8
8.84%
254.7
271.2
290.5
313.4
341.0
Undervalued/(Overvalued)
Terminal Growth Rate
Expenditures on R&D are crucial so that the firm adapts to ever-changing
software systems, internet speeds and security systems. I projected R&D
expenses to trend upwards as a percentage of total revenue, largely attributable
to the streaming duel with Netflix, and the increased competition of cloudcomputing.
SG&A
SG&A is projected to increase initially as Amazon expands operations, then
decrease and level off as the company benefits from increased economies of
scale.
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Depreciation & Amortization
Amazon invested heavily into capital expenditures in 2012, and is expected to
maintain high levels of investment in the next year or two. Depreciation and
amortization is projected as a percentage of revenue going forward. I projected a
high rate in 2013 to match up with expanding operations, but to decrease overall
as a percentage going forward as the company becomes more established
globally.
Capital Expenditures
Additional Senstivity Tables
Implied Price
Tax Rate
Terminal Growth Rate
Terminal Growth Rate
302
2.0%
2.5%
3.0%
3.5%
4.0%
20%
262.85
280.49
301.25
326.04
356.17
23%
263.02
280.68
301.47
326.31
356.48
26%
263.19
280.88
301.70
326.57
356.80
29%
263.36
281.07
301.93
326.84
357.12
32%
263.53
281.27
302.15
327.10
357.44
As described in depreciation and amortization, capital expenditures are expected
to be at higher percentages of revenue in the near future, and then decrease and
level off as the company matures overseas. Management did not give any
specific guidance on CapEx.
Tax Rate
Amazon’s effective tax rate is difficult to forecast because it is subject to foreign
exchange rates, acquisitions, and various legislative enactments. Management
did not provide any guidance for the tax rate going forward. To project the going
rate, I accounted for the increased state taxation of E-Commerce firms in the
United States in coming years, and then slowly decreased the rate towards the
industry average of 26%.
Recommendation
Final Valuation
Comparable Analysis
70%
$304.54
DCF Analysis
30%
$301.70
Implied Price
$303.69
Current Price
$271.24
Undervalued
11.96%
I recommend a buy for the Tall Firs portfolio. Amazon is a dominant force, and
will continue to take market share in a rapidly expanding industry. It is a
dynamic company, positioned well ahead in the cloud computing market and
continuously looking to diversify it’s product mix to compete with new firms.
While margins are currently thin, increased distribution centers and cloud
operations will effectively lower variable costs and increase margins going
forward. In addition, I feel that it is important to consider Amazon’s business
model as a whole. Brick-and-mortar retailers are an entity of the past, these
types of companies are giving way to online operators. As shipping times and
costs are cut down, E-Commerce businesses will eventually control the market.
I believe that the relative valuation was more indicative of Amazon’s true value.
After a 70% relative valuation and a 30% DCF valuation I calculated an implied
price of $303.69, an 11.96% undervaluation.
UOIG 11
University of Oregon Investment Group
Date of Presentation
Appendix 1 – Comparables Analysis
Comparables Analysis
($ in millions)
Stock Characteristics
Current Price
Beta
Max
$834.82
1.18
Min
$52.76
0.94
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Non-Controlling Interest
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
2,549
4,106
14,778
0
0
1,318
413,188
402,442
0
0
290
0
0
61
10,604
10,714
207
1,694
8,782
0
0
611
173,301
167,532
Growth Expectations
% Revenue Growth 2013E
% Revenue Growth 2014E
% EBITDA Growth 2013E
% EBITDA Growth 2014E
% EPS Growth 2013E
% EPS Growth 2014E
29.4%
27.2%
60.4%
55.6%
343.1%
149.5%
16.2%
12.6%
4.6%
12.1%
0.3%
13.6%
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
70.51%
30.27%
35.95%
23.07%
Credit Metrics
Interest Expense
Debt/EV
Leverage Ratio
Interest Coverage Ratio
Operating Results
Revenue
Gross Profit
EBIT
EBITDA
Net Income
Capital Expenditures
AMZN
AAPL
GOOG
NFLX
EBAY
Amazon.com Inc.
Apple Inc.
Google Inc.
Netflix Inc.
eBay Inc.
Median
Weight Avg.
$309.16
$363.60
1.06
1.06
$271.24
1.02
20.00%
$437.87
1.08
25.00%
$834.82
0.94
30.00%
$180.45
1.03
25.00%
$52.76
1.18
741
1,894
7,635
0
0
606
172,469
167,468
579
3,084
8,084
0
0
454
123,143
118,722
0
0
10,746
0
0
946
413,188
402,442
2,549
2,988
14,778
0
0
276
277,716
268,475
0
400
290
0
0
61
10,604
10,714
413
4,106
6,817
0
0
1,318
68,886
66,588
17.1%
13.7%
17.1%
15.5%
16.9%
16.8%
18.3%
13.9%
27.6%
26.9%
111.4%
55.9%
29.4%
27.2%
45.2%
42.8%
100.0%
148.3%
16.3%
12.6%
4.6%
12.1%
0.3%
13.6%
22.6%
12.6%
17.4%
15.8%
17.3%
16.5%
17.9%
15.3%
60.4%
55.6%
343.1%
149.5%
16.2%
14.7%
16.7%
15.2%
16.5%
17.0%
25.79%
1.77%
5.21%
1.45%
48.44%
28.76%
33.30%
19.57%
48.23%
21.48%
25.87%
14.93%
25.79%
1.77%
5.21%
1.45%
38.90%
30.27%
33.63%
23.07%
57.99%
30.11%
35.95%
21.12%
27.75%
3.48%
6.39%
1.79%
70.51%
27.42%
32.97%
18.02%
$196
0.07
1.47
27.50
$0
0.00
0.00
0.00
$10
0.03
0.54
6.80
$55
0.03
0.71
10.96
$172
0.03
0.89
23.94
$0
0.00
0.00
0.00
$0
0.02
0.25
0.00
$20
0.04
1.47
13.61
$196
0.07
0.84
27.50
$182,054
$70817
$55114
$61225
$42001
$9321
$4,256
$1181
$148
$272
$76
$49
$38,933
$23600
$11503
$13753
$7968
$2599
$57,154
$26317
$16818
$19203
$12407
$3178
$79,026
$20381
$1399
$4117
$1145
$3252
$182,054
$70817
$55114
$61225
$42001
$9321
$61,515
$35671
$18522
$22115
$12990
$3771
$4,256
$1181
$148
$272
$76
$49
$16,350
$11528
$4483
$5390
$2946
$1426
4.36x
9.07x
84.88x
39.39x
137.14x
139.52x
1.50x
5.68x
7.30x
6.57x
7.75x
9.84x
3.30x
6.65x
14.67x
12.25x
15.72x
22.38x
3.31x
7.18x
30.51x
19.25x
23.82x
55.02x
1.50x
5.83x
84.88x
28.84x
137.14x
107.50x
2.21x
5.68x
7.30x
6.57x
7.75x
9.84x
4.36x
7.53x
14.49x
12.14x
14.64x
21.38x
2.52x
9.07x
72.39x
39.39x
48.04x
139.52x
4.07x
5.78x
14.85x
12.35x
16.80x
23.38x
2013E
Multiples
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
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%
$304.54
271.24
12.28%
UOIG 12
University of Oregon Investment Group
Date of Presentation
Appendix 2 – Discounted Cash Flows Analysis
Discounted Cash Flow Analysis
($ in millions)
Total Revenue
2009A
2010A
24,509
% YoY Growth
2011A
2012A
Q1
Q2
Q3
Q4
03/31/2013E
06/30/2013E
09/30/2013E
12/31/2013E
2013E
Q1
Q2
Q3
Q4
03/31/2014E
06/30/2014E
09/30/2014E
12/31/2014E
2014E
2015E
2016E
2017E
2018E
34,204
48,077
61,093
16,729
15,604
17,454
29,239
79,026
20,065
21,282
22,997
36,193
100,537
126,103
155,952
188,842
39.56%
40.56%
27.07%
26.87%
21.58%
26.42%
37.47%
29.35%
19.94%
36.39%
31.76%
23.78%
27.22%
25.43%
23.67%
21.09%
223,212
18.20%
37,288
45,971
12,547
11,706
13,092
21,929
58,645
14,878
15,770
16,995
26,667
73,895
92,560
114,157
137,855
162,945
Cost of Goods Sold
18,978
26,561
% Revenue
77.43%
77.65%
77.56%
75.25%
75.00%
75.02%
75.01%
75.00%
74.21%
74.15%
74.10%
73.90%
73.68%
73.50%
73.40%
73.20%
73.00%
73.00%
Gross Profit
$5,531
$7,643
$10,789
$15,122
$4,182
$3,898
$4,362
$7,310
$20,381
$5,187
$5,512
$6,002
$9,526
$26,642
$33,544
$41,795
$50,987
$60,267
22.57%
22.35%
22.44%
24.75%
25.00%
24.98%
24.99%
25.00%
25.79%
25.85%
25.90%
26.10%
26.32%
26.50%
26.60%
26.80%
27.00%
27.00%
630
931
1,205
1,145
390
364
407
681
1,841
447
475
513
807
2,242
2,522
3,119
3,777
4,464
2.57%
2.72%
2.51%
1.87%
2.33%
2.33%
2.33%
2.33%
2.33%
2.23%
2.23%
2.23%
2.23%
2.23%
2.00%
2.00%
2.00%
2.00%
Gross Margin
Selling General and Administrative Expense
% Revenue
Depreciation and Amortization
% Revenue
378
568
1,083
2,159
599
565
644
1,096
2,718
672
698
718
1,089
3,177
3,468
4,133
4,627
5,469
1.54%
1.66%
2.25%
3.53%
3.58%
3.62%
3.69%
3.75%
3.44%
3.35%
3.28%
3.12%
3.01%
3.15%
2.75%
2.65%
2.45%
2.45%
Fulfillment
2,052
2,898
4,576
6,419
1,762
1,645
1,833
3,076
8,298
2,121
2,237
2,405
3,710
10,556
13,241
16,375
19,828
23,437
% Revenue
8.37%
8.47%
9.52%
10.51%
10.53%
10.54%
10.50%
10.52%
10.50%
10.57%
10.51%
10.46%
10.25%
10.50%
10.50%
10.50%
10.50%
10.50%
Technology and Content
1,240
1,734
2,909
4,564
1,253
1,169
1,307
2,190
5,919
1,521
1,613
1,743
2,743
7,721
9,685
12,086
14,730
17,924
% Revenue
5.06%
5.07%
6.05%
7.47%
7.49%
7.49%
7.49%
7.49%
7.49%
7.58%
7.58%
7.58%
7.58%
7.68%
7.68%
7.75%
7.80%
8.03%
102
106
154
159
43
41
45
76
205
48
51
55
87
241
277
343
415
491
.42%
.31%
.32%
.26%
.26%
.26%
.26%
.26%
.26%
.24%
.24%
.24%
.24%
.24%
.22%
.22%
.22%
.22%
Earnings Before Interest & Taxes
$1,129
$1,406
$862
$676
$136
$115
$126
$190
$1,399
$377
$438
$568
$1,089
$2,704
$4,351
$5,739
$7,610
$8,482
% Revenue
4.61%
4.11%
1.79%
1.11%
0.81%
0.74%
0.72%
0.65%
1.77%
1.88%
2.06%
2.47%
3.01%
2.69%
3.45%
3.68%
4.03%
3.80%
34
39
65
92
.14%
.11%
.14%
.15%
-29
-79
-76
80
(.12%)
(.23%)
(.16%)
.13%
Other Expense
% Revenue
Interest Expense
% Revenue
Other Expense (Income)
% Revenue
Net Interest (Income)
% Revenue
Earnings Before Taxes
% Revenue
Less Taxes (Benefits)
-37
-51
-61
-40
(.15%)
(.15%)
(.13%)
(.07%)
1,161
1,497
934
544
136
115
126
190
1,399
377
438
568
1,089
2,704
4,351
5,739
7,610
8,482
4.74%
4.38%
1.94%
.89%
.81%
.74%
.72%
.65%
1.77%
1.88%
2.06%
2.47%
3.01%
2.69%
3.45%
3.68%
4.03%
4.10%
259
345
303
583
65
53
55
80
253
128
149
193
370
919
1,349
1,607
1,979
2,205
22.31%
23.05%
32.44%
107.17%
48.00%
46.00%
44.00%
42.00%
36.00%
34.00%
34.00%
34.00%
34.00%
34.00%
31.00%
28.00%
26.00%
26.00%
Net Income
$902
$1,152
$631
($39)
$70
$62
$70
$110
$1,145
$249
$289
$375
$719
$1,785
$3,002
$4,132
$5,632
$6,277
Net Margin
3.68%
3.37%
1.31%
-0.06%
0.42%
0.40%
0.40%
0.38%
1.45%
1.24%
1.36%
1.63%
1.99%
1.78%
2.38%
2.65%
2.98%
2.81%
Add Back: Depreciation and Amortization
378
568
1,083
2,159
599
565
644
1,096
2,718
672
698
718
1,089
3,177
3,468
4,133
4,627
5,469
Add Back: Interest Expense*(1-Tax Rate)
26.42
30.01
(6.60)
0.00
0.00
0.00
0.00
0.00
0.00
Tax Rate
43.91
0.00
0.00
0.00
10,258
0.00
1,758
2,113
669
627
714
1,207
3,864
921
987
1,092
% Revenue
5.33%
5.12%
3.66%
3.46%
4.00%
4.02%
4.09%
4.13%
4.89%
4.59%
4.64%
4.75%
5.00%
4.94%
5.13%
5.30%
5.43%
5.26%
3,431
4,985
7,914
9,848
6,617
5,582
6,483
8,908
8,908
8,100
8,192
9,221
12,119
12,119
15,194
18,591
22,652
27,386
14.00%
14.57%
16.46%
16.12%
8.37%
7.06%
8.20%
11.27%
11.27%
8.06%
8.15%
9.17%
12.05%
12.05%
12.05%
11.92%
12.00%
12.27%
7,364
10,372
14,896
19,002
21,861
21,175
22,583
24,647
24,647
24,671
25,500
27,065
30,745
30,745
38,274
46,913
56,048
66,093
30.05%
30.32%
30.98%
31.10%
27.66%
26.79%
28.58%
31.19%
31.19%
24.54%
25.36%
26.92%
30.58%
30.58%
30.35%
30.08%
29.68%
29.61%
% Revenue
8,265
0.00
1,750
Current Liabilities
6,470
0.00
1,306
% Revenue
4,962
0.00
Operating Cash Flow
Current Assets
1,808
0.00
11,745
Net Working Capital
($3,933)
($5,387)
($6,982)
($9,154)
($15,245)
($15,592)
($16,099)
($15,740)
($15,740)
($16,571)
($17,308)
($17,845)
($18,626)
($18,626)
($23,081)
($28,321)
($33,396)
($38,707)
% Revenue
-16.05%
-15.75%
-14.52%
-14.98%
-91.13%
-99.93%
-92.24%
-53.83%
-19.92%
-82.59%
-81.33%
-77.60%
-51.46%
-18.53%
-18.30%
-18.16%
-17.68%
-17.34%
-1454
-1595
-2172
($6,091)
($348)
($507)
$360
($6,586)
($831)
($737)
($537)
($781)
($2,886)
($4,455)
($5,240)
($5,075)
($5,310)
373
979
1,811
3,785
711
655
716
1,170
3,252
891
922
934
1,336
4,082
4,098
4,289
4,721
5,580
1.52%
2.86%
3.77%
6.20%
4.25%
4.20%
4.10%
4.00%
4.11%
4.44%
4.33%
4.06%
3.69%
4.06%
3.25%
2.75%
2.50%
2.50%
1,562
Change in Working Capital
Capital Expenditures
% Revenue
Acquisitions
% Revenue
Unlevered Free Cash Flow
40
352
705
705
164
153
171
287
774
183
187
189
275
855
1,009
1,170
1,360
.16%
1.03%
1.47%
1.15%
.98%
.98%
.98%
.98%
.98%
.91%
.88%
.82%
.76%
.85%
.80%
.75%
.72%
.70%
893
1,873
837
(205)
5,885
167
335
(609)
6,424
679
616
507
979
2,912
5,817
8,047
9,253
9,913
5,764
160
315
(561)
612
544
438
829
4,537
5,776
6,114
6,029
13,951
Discounted Free Cash Flow
EBITDA
EBITDA Margin
EBITDA Growth
1,507
1,974
1,945
2,835
734
680
770
1,287
4,117
1,049
1,136
1,286
2,179
5,881
7,818
9,872
12,237
6.15%
5.77%
4.05%
4.64%
4.39%
4.36%
4.41%
4.40%
5.21%
5.23%
5.34%
5.59%
6.02%
5.85%
6.20%
6.33%
6.48%
6.25%
30.99%
-1.47%
45.76%
-74.10%
-7.36%
13.14%
67.14%
45.23%
-74.51%
8.30%
13.12%
69.49%
42.85%
32.93%
26.26%
23.96%
14.00%
Intermediate Growth Rate:
5.00%
2019E
2020E
2021E
2022E
2023E
$10,409
$10,929
$11,476
$12,049
$12,652
UOIG 13
University of Oregon Investment Group
Date of Presentation
Appendix 3 – Revenue Model
Revenue Model
($ in millions)
Q1
2009A
2010A
2011A
2012A
Q2
Q3
Q4
03/31/2013E 06/30/2013E 09/30/2013E 12/31/2013E
Q1
2013E
Q2
Q3
Q4
03/31/2014E 06/30/2014E 09/30/2014E 12/31/2014E
2014E
2015E
2016E
2017E
2018E
Media
12,774
14,888
17,779
19,942
5,437
4,993
5,498
9,064
24,992
6,020
6,287
7,651
11,607
31,564
34,048
38,598
44,378
49,107
% Growth
15.00%
16.55%
19.42%
12.17%
18.19%
21.21%
20.20%
21.34%
25.32%
10.72%
25.90%
39.16%
28.06%
26.30%
7.87%
13.36%
14.97%
10.66%
% of Revenue
52.12%
43.53%
36.98%
32.64%
32.50%
32.00%
31.50%
31.00%
30.50%
30.00%
29.54%
33.27%
32.07%
31.40%
27.00%
24.75%
23.50%
22.00%
Electronics and Other Merchandise
11,082
18,363
28,712
38,628
10,588
9,941
11,195
18,874
50,598
13,133
14,016
14,277
22,885
64,310
85,750
109,166
134,078
160,712
% Growth
47.00%
65.70%
56.36%
34.54%
23.72%
21.81%
24.04%
26.78%
30.99%
24.03%
40.99%
27.53%
21.25%
27.10%
33.34%
27.31%
22.82%
19.86%
% of Revenue
45.22%
53.69%
59.72%
63.23%
63.29%
63.71%
64.14%
64.55%
65.00%
65.45%
65.86%
62.08%
63.23%
67.00%
68.00%
70.00%
71.00%
72.00%
653
953
1,586
2,523
704
669
761
1,301
3,436
913
979
1,069
1,701
4,662
6,305
8,187
10,386
13,393
20.00%
45.94%
66.42%
59.08%
9.60%
20.75%
18.73%
16.32%
36.18%
29.63%
46.24%
40.52%
30.74%
35.70%
35.24%
29.85%
26.86%
28.95%
Other
% Growth
% of Revenue
2.66%
2.79%
3.30%
4.13%
4.21%
4.29%
4.36%
4.45%
4.50%
4.55%
4.60%
4.65%
4.70%
4.75%
5.00%
5.25%
5.50%
6.00%
Total Revenue
24,509
34,204
48,077
61,093
16,729
15,604
17,454
29,239
79,026
20,065
21,282
22,997
36,193
100,537
126,103
155,952
188,842
223,212
% Growth
28.00%
40.00%
41.00%
27.07%
26.87%
21.58%
26.42%
37.47%
29.35%
19.94%
36.39%
31.76%
23.78%
27.22%
25.43%
23.67%
21.09%
18.20%
International
11,681
15,497
21,372
26,280
7,214
6,767
7,598
12,754
34,612
8,799
9,343
10,107
15,925
44,289
57,415
74,108
92,098
111,427
% Growth
31.00%
33.00%
38.00%
22.96%
21.81%
22.85%
31.90%
28.36%
31.70%
21.97%
38.05%
33.03%
24.86%
27.96%
29.64%
29.08%
24.28%
20.99%
% of Total Revenue
47.66%
45.31%
44.45%
43.02%
43.12%
43.37%
43.53%
43.62%
43.80%
43.85%
43.90%
43.95%
44.00%
44.05%
45.53%
47.52%
48.77%
49.92%
North America
12,828
18,707
26,705
34,813
9,515
8,837
9,856
16,485
44,414
11,266
11,939
12,890
20,268
56,248
68,689
81,844
96,744
111,784
% Growth
25.00%
46.00%
43.00%
30.36%
20.68%
20.62%
21.42%
23.87%
27.58%
18.40%
35.11%
30.78%
22.95%
26.64%
22.12%
19.15%
18.21%
15.55%
% of Total Revenue
52.34%
54.69%
55.55%
56.98%
56.88%
56.63%
56.47%
56.38%
56.20%
56.15%
56.10%
56.05%
56.00%
55.95%
54.47%
52.48%
51.23%
50.08%
Total Revenue
24,509
34,204
48,077
61,093
16,729
15,604
17,454
29,239
79,026
20,065
21,282
22,997
36,193
100,537
126,103
155,952
188,842
223,212
% Growth
28.00%
40.00%
41.00%
27.07%
26.87%
21.58%
26.42%
37.47%
29.35%
19.94%
36.39%
31.76%
23.78%
27.22%
25.43%
23.67%
21.09%
18.20%
UOIG 14
University of Oregon Investment Group
Date of Presentation
Appendix 4 – Working Capital Model
Working Capital Model
($ in millions)
Total Revenue
Current Assets
Accounts Receivable
Days Sales Outstanding A/R
% of Revenue
Inventory
Days Inventory Outstanding
% of Revenue
Dererred Tax Assets
Days COGS Outstanding
% of Revenue
Total Current Assets
% of Revenue
Long Term Assets
Net PP&E Beginning
Capital Expenditures
Acquisitions
Depreciation and Amortization
Net PP&E Ending
Total Current Assets & Net PP&E
% of Revenue
Current Liabilities
Accounts Payable
Days Payable Outstanding
% of Revenue
Accrued Expenses and Other
% of Revenue
Total Current Liabilities
% of Revenue
2009A
2010A
2011A
2012A
Q1
Q2
Q3
Q4
03/31/2013E
06/30/2013E
09/30/2013E
12/31/2013E
Q1
2013E
Q2
Q3
Q4
03/31/2014E 06/30/2014E 09/30/2014E 12/31/2014E
2014E
2015E
2016E
2017E
2018E
24,509
34,204
48,077
61,093
16,729
15,604
17,454
29,239
79,026
20,065
21,282
22,997
36,193
100,537
126,103
155,952
188,842
223,212
988
15
4.03%
2,171
42
8.86%
272
4
1.11%
3,431
14.00%
1,587
17
4.64%
3,202
44
9.36%
196
2
0.57%
4,985
14.57%
2,571
20
5.35%
4,992
49
10.38%
351
3
0.73%
7,914
16.46%
3,364
20
5.51%
6,031
48
9.87%
453
3
0.74%
9,848
16.12%
4,033
22
5.10%
2,033
46
2.57%
550
3
0.70%
6,617
39.55%
3,420
20
4.33%
1,649
44
2.09%
513
3
0.65%
5,582
35.77%
4,017
21
5.08%
1,893
43
2.40%
574
3
0.73%
6,483
37.15%
4,763
20
6.03%
3,495
47
4.42%
650
3
0.82%
8,908
30.47%
4,763
22
6.03%
3,495
43
4.42%
650
3
0.82%
8,908
11.27%
5,057
23
25.21%
2,383
43
11.88%
660
3
3.29%
8,100
40.37%
5,131
22
24.11%
2,362
42
11.10%
700
3
3.29%
8,192
38.49%
5,797
23
25.21%
2,668
42
11.60%
756
3
3.29%
9,221
40.09%
6,611
24
18.26%
4,682
45
12.94%
826
3
2.28%
12,119
33.48%
6,611
24
6.58%
4,682
41
4.66%
826
3
0.82%
12,119
12.05%
8,637
25
6.85%
5,520
40
4.38%
1,036
3
0.82%
15,194
12.05%
10,682
25
6.85%
6,628
39
4.25%
1,282
3
0.82%
18,591
11.92%
13,452
26
7.12%
7,648
39
4.05%
1,552
3
0.82%
22,652
12.00%
16,512
27
7.40%
9,040
39
4.05%
1,835
3
0.82%
27,386
12.27%
1,290
373
40
378
2,081
5,512
8.49%
2,414
979
352
568
4,313
9,298
12.61%
4,417
1,811
705
1,083
8,016
15,930
16.67%
7,060
3,785
705
2,159
13,709
23,557
22.44%
13,709
711
164
599
15,183
21,799
90.76%
15,183
655
153
565
16,556
22,138
106.10%
16,556
716
171
644
18,087
24,570
103.62%
18,087
1,170
287
1,096
20,639
29,547
70.59%
20,639
3,252
774
2,718
27,384
36,291
34.65%
27,384
891
183
672
29,129
37,230
145.18%
29,129
922
187
698
30,936
39,129
145.36%
30,936
934
189
718
32,776
41,997
142.52%
32,776
1,336
275
1,089
35,476
47,595
98.02%
35,476
4,082
855
3,177
43,589
55,708
43.36%
43,589
4,098
1,009
3,468
52,164
67,358
41.37%
52,164
4,289
1,170
4,133
61,755
80,347
39.60%
61,755
4,721
1,360
4,627
72,463
95,115
38.37%
72,463
5,580
1,562
5,469
85,074
112,460
38.11%
5,605
108
22.87%
1,759
7.18%
7,364
30.05%
8,051
111
23.54%
2,321
6.79%
10,372
30.32%
11,145
109
23.18%
3,751
7.80%
14,896
30.98%
13,318
106
21.80%
5,684
9.30%
19,002
31.10%
14,575
106
18.44%
7,286
9.22%
21,861
27.66%
13,983
109
17.69%
7,191
9.10%
21,175
26.79%
15,352
107
19.43%
7,231
9.15%
22,583
28.58%
17,488
108
22.13%
7,160
9.06%
24,647
31.19%
17,488
109
22.13%
7,160
9.06%
24,647
31.19%
17,772
109
88.57%
6,899
8.73%
24,671
31.22%
18,665
108
87.70%
6,836
8.65%
25,500
32.27%
20,301
109
88.28%
6,765
8.56%
27,065
34.25%
22,270
109
61.53%
8,475
8.43%
30,745
38.90%
22,270
110
22.15%
8,475
8.43%
30,745
30.58%
28,148
111
22.32%
10,126
8.03%
38,274
30.35%
35,029
112
22.46%
11,884
7.62%
46,913
30.08%
42,301
112
22.40%
13,748
7.28%
56,048
29.68%
50,446
113
22.60%
15,647
7.01%
66,093
29.61%
UOIG 15
University of Oregon Investment Group
Date of Presentation
Appendix 5 – Discounted Cash Flows Analysis Assumptions
Discounted Free Cash Flow Assumptions
Tax Rate
Risk Free Rate
Beta
Market Risk Premium
% Equity
26.00% Terminal Growth Rate
3.26% Terminal Value
1.01 PV of Terminal Value
5.46% Sum of PV Free Cash Flows
97.11% Firm Value
ConsiderationsConsiderations
3.00%
180,995
110,078
30,557
140,635
% Debt
2.89% Total Debt
Cost of Debt
4.45% Cash & Cash Equivalents
3,663
CAPM
8.80% Market Capitalization
WACC
8.64% Fully Diluted Shares
454
Implied Price
302
Current Price
271
Undervalued
11.23%
11,448
136,972
Avg. Industry Debt / Equity
60.00%
Avg. Industry Tax Rate
26.00%
Current Reinvestment Rate
Reinvestment Rate in Year 2018E
Implied Return on Capital in Perpetuity
(322.17%)
-57.93%
Reinvest More
Terminal Value as a % of Total
78.3%
Implied 2014E EBITDA Multiple
23.9x
Implied Multiple in Year 2018E
7.9x
Free Cash Flow Growth Rate in Year 2018E
7%
UOIG 16
University of Oregon Investment Group
Date of Presentation
Appendix 6 – Sources
Plunkettresearch.com
SCM World
IBISWorld
Reuters
Forbes
S&P Netadvantage
Morningstar
Yahoo!Finance
SEC Filings
Amazon Investor Relations
Bloomberg
UO Libraries and Databases
Factset
UOIG 17