Intrinsic value of Amazon.com - AMZN

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$1,003.74

  Intrinsic Value

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  Value-price divergence*

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$1,003.74

 
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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of AMZN stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 476.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  27.08
  22.40
  20.66
  19.09
  17.68
  16.42
  15.27
  14.25
  13.32
  12.49
  11.74
  11.07
  10.46
  9.91
  9.42
  8.98
  8.58
  8.22
  7.90
  7.61
  7.35
  7.12
  6.90
  6.71
  6.54
  6.39
  6.25
  6.12
  6.01
  5.91
  5.82
Revenue, $m
  135,987
  166,448
  200,836
  239,184
  281,483
  327,691
  377,745
  431,562
  489,056
  550,140
  614,733
  682,765
  754,185
  828,956
  907,068
  988,528
  1,073,368
  1,161,644
  1,253,436
  1,348,843
  1,447,989
  1,551,020
  1,658,101
  1,769,417
  1,885,175
  2,005,599
  2,130,932
  2,261,435
  2,397,388
  2,539,088
  2,686,852
Variable operating expenses, $m
 
  155,211
  187,200
  222,871
  262,218
  305,202
  351,763
  401,825
  455,307
  512,128
  572,213
  635,120
  701,556
  771,110
  843,770
  919,545
  998,466
  1,080,582
  1,165,968
  1,254,717
  1,346,945
  1,442,786
  1,542,394
  1,645,943
  1,753,623
  1,865,643
  1,982,230
  2,103,626
  2,230,092
  2,361,904
  2,499,357
Fixed operating expenses, $m
 
  5,230
  5,360
  5,494
  5,632
  5,772
  5,917
  6,065
  6,216
  6,372
  6,531
  6,694
  6,862
  7,033
  7,209
  7,389
  7,574
  7,763
  7,957
  8,156
  8,360
  8,569
  8,783
  9,003
  9,228
  9,459
  9,695
  9,938
  10,186
  10,441
  10,702
Total operating expenses, $m
  131,801
  160,441
  192,560
  228,365
  267,850
  310,974
  357,680
  407,890
  461,523
  518,500
  578,744
  641,814
  708,418
  778,143
  850,979
  926,934
  1,006,040
  1,088,345
  1,173,925
  1,262,873
  1,355,305
  1,451,355
  1,551,177
  1,654,946
  1,762,851
  1,875,102
  1,991,925
  2,113,564
  2,240,278
  2,372,345
  2,510,059
Operating income, $m
  4,186
  6,007
  8,276
  10,818
  13,633
  16,716
  20,065
  23,672
  27,533
  31,640
  35,988
  40,951
  45,767
  50,814
  56,089
  61,593
  67,328
  73,299
  79,511
  85,969
  92,684
  99,665
  106,923
  114,472
  122,324
  130,497
  139,007
  147,871
  157,110
  166,743
  176,794
EBITDA, $m
  12,302
  12,844
  16,447
  20,477
  24,932
  29,809
  35,100
  40,795
  46,887
  53,364
  60,218
  67,442
  75,030
  82,977
  91,283
  99,948
  108,975
  118,371
  128,144
  138,305
  148,866
  159,845
  171,257
  183,125
  195,469
  208,314
  221,687
  235,615
  250,129
  265,260
  281,044
Interest expense (income), $m
  290
  532
  503
  960
  1,470
  2,033
  2,647
  3,313
  4,029
  4,794
  5,607
  6,466
  7,371
  8,321
  9,315
  10,355
  11,438
  12,567
  13,741
  14,962
  16,231
  17,550
  18,921
  20,345
  21,826
  23,366
  24,968
  26,635
  28,371
  30,179
  32,064
Earnings before tax, $m
  3,892
  5,475
  7,774
  9,858
  12,162
  14,684
  17,417
  20,359
  23,504
  26,846
  30,382
  34,485
  38,397
  42,493
  46,773
  51,238
  55,890
  60,733
  65,770
  71,007
  76,453
  82,115
  88,003
  94,127
  100,499
  107,131
  114,039
  121,236
  128,739
  136,564
  144,730
Tax expense, $m
  1,425
  1,478
  2,099
  2,662
  3,284
  3,965
  4,703
  5,497
  6,346
  7,248
  8,203
  9,311
  10,367
  11,473
  12,629
  13,834
  15,090
  16,398
  17,758
  19,172
  20,642
  22,171
  23,761
  25,414
  27,135
  28,925
  30,791
  32,734
  34,760
  36,872
  39,077
Net income, $m
  2,371
  3,997
  5,675
  7,197
  8,879
  10,719
  12,715
  14,862
  17,158
  19,598
  22,179
  25,174
  28,030
  31,020
  34,144
  37,404
  40,800
  44,335
  48,012
  51,835
  55,811
  59,944
  64,242
  68,712
  73,364
  78,206
  83,249
  88,503
  93,980
  99,692
  105,653

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  25,981
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  83,402
  70,291
  84,813
  101,007
  118,869
  138,383
  159,520
  182,247
  206,527
  232,323
  259,600
  288,330
  318,490
  350,066
  383,052
  417,453
  453,280
  490,559
  529,322
  569,613
  611,482
  654,992
  700,211
  747,220
  796,104
  846,959
  899,887
  954,998
  1,012,410
  1,072,250
  1,134,650
Adjusted assets (=assets-cash), $m
  57,421
  70,291
  84,813
  101,007
  118,869
  138,383
  159,520
  182,247
  206,527
  232,323
  259,600
  288,330
  318,490
  350,066
  383,052
  417,453
  453,280
  490,559
  529,322
  569,613
  611,482
  654,992
  700,211
  747,220
  796,104
  846,959
  899,887
  954,998
  1,012,410
  1,072,250
  1,134,650
Revenue / Adjusted assets
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
  2.368
Average production assets, $m
  26,399
  32,291
  38,962
  46,402
  54,608
  63,572
  73,282
  83,723
  94,877
  106,727
  119,258
  132,456
  146,312
  160,818
  175,971
  191,774
  208,233
  225,359
  243,167
  261,675
  280,910
  300,898
  321,672
  343,267
  365,724
  389,086
  413,401
  438,718
  465,093
  492,583
  521,249
Working capital, $m
  1,965
  -29,461
  -35,548
  -42,336
  -49,822
  -58,001
  -66,861
  -76,386
  -86,563
  -97,375
  -108,808
  -120,849
  -133,491
  -146,725
  -160,551
  -174,969
  -189,986
  -205,611
  -221,858
  -238,745
  -256,294
  -274,531
  -293,484
  -313,187
  -333,676
  -354,991
  -377,175
  -400,274
  -424,338
  -449,419
  -475,573
Total debt, $m
  19,354
  14,358
  27,427
  42,002
  58,078
  75,641
  94,664
  115,119
  136,970
  160,186
  184,736
  210,593
  237,737
  266,155
  295,843
  326,803
  359,048
  392,599
  427,486
  463,747
  501,430
  540,588
  581,286
  623,594
  667,590
  713,359
  760,994
  810,594
  862,265
  916,121
  972,281
Total liabilities, $m
  64,117
  63,262
  76,331
  90,906
  106,982
  124,545
  143,568
  164,023
  185,874
  209,090
  233,640
  259,497
  286,641
  315,059
  344,747
  375,707
  407,952
  441,503
  476,390
  512,651
  550,334
  589,492
  630,190
  672,498
  716,494
  762,263
  809,898
  859,498
  911,169
  965,025
  1,021,185
Total equity, $m
  19,285
  7,029
  8,481
  10,101
  11,887
  13,838
  15,952
  18,225
  20,653
  23,232
  25,960
  28,833
  31,849
  35,007
  38,305
  41,745
  45,328
  49,056
  52,932
  56,961
  61,148
  65,499
  70,021
  74,722
  79,610
  84,696
  89,989
  95,500
  101,241
  107,225
  113,465
Total liabilities and equity, $m
  83,402
  70,291
  84,812
  101,007
  118,869
  138,383
  159,520
  182,248
  206,527
  232,322
  259,600
  288,330
  318,490
  350,066
  383,052
  417,452
  453,280
  490,559
  529,322
  569,612
  611,482
  654,991
  700,211
  747,220
  796,104
  846,959
  899,887
  954,998
  1,012,410
  1,072,250
  1,134,650
Debt-to-equity ratio
  1.004
  2.040
  3.230
  4.160
  4.890
  5.470
  5.930
  6.320
  6.630
  6.890
  7.120
  7.300
  7.460
  7.600
  7.720
  7.830
  7.920
  8.000
  8.080
  8.140
  8.200
  8.250
  8.300
  8.350
  8.390
  8.420
  8.460
  8.490
  8.520
  8.540
  8.570
Adjusted equity ratio
  -0.117
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,371
  3,997
  5,675
  7,197
  8,879
  10,719
  12,715
  14,862
  17,158
  19,598
  22,179
  25,174
  28,030
  31,020
  34,144
  37,404
  40,800
  44,335
  48,012
  51,835
  55,811
  59,944
  64,242
  68,712
  73,364
  78,206
  83,249
  88,503
  93,980
  99,692
  105,653
Depreciation, amort., depletion, $m
  8,116
  6,837
  8,171
  9,659
  11,300
  13,093
  15,035
  17,123
  19,354
  21,724
  24,230
  26,491
  29,262
  32,164
  35,194
  38,355
  41,647
  45,072
  48,633
  52,335
  56,182
  60,180
  64,334
  68,653
  73,145
  77,817
  82,680
  87,744
  93,019
  98,517
  104,250
Funds from operations, $m
  20,359
  10,833
  13,846
  16,855
  20,179
  23,812
  27,750
  31,985
  36,512
  41,322
  46,409
  51,665
  57,292
  63,183
  69,339
  75,759
  82,447
  89,407
  96,645
  104,171
  111,993
  120,123
  128,576
  137,366
  146,509
  156,023
  165,929
  176,246
  186,998
  198,208
  209,902
Change in working capital, $m
  3,916
  -5,392
  -6,087
  -6,788
  -7,487
  -8,179
  -8,859
  -9,526
  -10,176
  -10,812
  -11,433
  -12,042
  -12,641
  -13,235
  -13,826
  -14,418
  -15,017
  -15,625
  -16,247
  -16,887
  -17,549
  -18,236
  -18,953
  -19,703
  -20,489
  -21,315
  -22,184
  -23,099
  -24,064
  -25,081
  -26,154
Cash from operations, $m
  16,443
  19,794
  19,932
  23,643
  27,665
  31,991
  36,609
  41,511
  46,688
  52,133
  57,842
  63,707
  69,933
  76,418
  83,164
  90,177
  97,463
  105,032
  112,892
  121,058
  129,542
  138,360
  147,529
  157,069
  166,998
  177,338
  188,113
  199,345
  211,062
  223,289
  236,057
Maintenance CAPEX, $m
  0
  -5,280
  -6,458
  -7,792
  -9,280
  -10,922
  -12,714
  -14,656
  -16,745
  -18,975
  -21,345
  -23,852
  -26,491
  -29,262
  -32,164
  -35,194
  -38,355
  -41,647
  -45,072
  -48,633
  -52,335
  -56,182
  -60,180
  -64,334
  -68,653
  -73,145
  -77,817
  -82,680
  -87,744
  -93,019
  -98,517
New CAPEX, $m
  -6,737
  -5,892
  -6,671
  -7,439
  -8,206
  -8,964
  -9,710
  -10,441
  -11,154
  -11,850
  -12,531
  -13,198
  -13,855
  -14,506
  -15,154
  -15,803
  -16,459
  -17,126
  -17,807
  -18,509
  -19,234
  -19,988
  -20,774
  -21,595
  -22,457
  -23,362
  -24,315
  -25,318
  -26,375
  -27,490
  -28,666
Cash from investing activities, $m
  -9,876
  -11,172
  -13,129
  -15,231
  -17,486
  -19,886
  -22,424
  -25,097
  -27,899
  -30,825
  -33,876
  -37,050
  -40,346
  -43,768
  -47,318
  -50,997
  -54,814
  -58,773
  -62,879
  -67,142
  -71,569
  -76,170
  -80,954
  -85,929
  -91,110
  -96,507
  -102,132
  -107,998
  -114,119
  -120,509
  -127,183
Free cash flow, $m
  6,567
  8,622
  6,803
  8,411
  10,179
  12,105
  14,184
  16,414
  18,790
  21,308
  23,965
  26,657
  29,586
  32,650
  35,847
  39,180
  42,649
  46,259
  50,013
  53,915
  57,972
  62,190
  66,576
  71,139
  75,887
  80,831
  85,981
  91,348
  96,943
  102,781
  108,874
Issuance/(repayment) of debt, $m
  -3,740
  -855
  13,070
  14,575
  16,076
  17,562
  19,024
  20,454
  21,852
  23,216
  24,550
  25,857
  27,144
  28,418
  29,688
  30,960
  32,245
  33,551
  34,887
  36,261
  37,682
  39,159
  40,698
  42,308
  43,996
  45,769
  47,635
  49,600
  51,671
  53,856
  56,160
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -2,911
  -855
  13,070
  14,575
  16,076
  17,562
  19,024
  20,454
  21,852
  23,216
  24,550
  25,857
  27,144
  28,418
  29,688
  30,960
  32,245
  33,551
  34,887
  36,261
  37,682
  39,159
  40,698
  42,308
  43,996
  45,769
  47,635
  49,600
  51,671
  53,856
  56,160
Total cash flow (excl. dividends), $m
  3,444
  7,767
  19,873
  22,986
  26,255
  29,667
  33,208
  36,868
  40,641
  44,524
  48,515
  52,514
  56,731
  61,068
  65,535
  70,140
  74,895
  79,810
  84,900
  90,176
  95,655
  101,349
  107,274
  113,447
  119,883
  126,600
  133,616
  140,948
  148,615
  156,637
  165,034
Retained Cash Flow (-), $m
  -5,901
  -13,725
  -1,452
  -1,619
  -1,786
  -1,951
  -2,114
  -2,273
  -2,428
  -2,580
  -2,728
  -2,873
  -3,016
  -3,158
  -3,299
  -3,440
  -3,583
  -3,728
  -3,876
  -4,029
  -4,187
  -4,351
  -4,522
  -4,701
  -4,888
  -5,085
  -5,293
  -5,511
  -5,741
  -5,984
  -6,240
Prev. year cash balance distribution, $m
 
  25,981
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  20,023
  18,420
  21,366
  24,469
  27,716
  31,094
  34,595
  38,213
  41,944
  45,787
  49,641
  53,715
  57,911
  62,236
  66,700
  71,312
  76,082
  81,023
  86,147
  91,468
  96,998
  102,752
  108,746
  114,995
  121,515
  128,323
  135,436
  142,873
  150,653
  158,794
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  19,197
  16,863
  18,594
  20,148
  21,483
  22,566
  23,372
  23,884
  24,095
  24,004
  23,574
  22,922
  22,019
  20,894
  19,582
  18,122
  16,554
  14,921
  13,264
  11,623
  10,033
  8,526
  7,127
  5,857
  4,727
  3,744
  2,907
  2,210
  1,645
  1,196
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Amazon.com, Inc. engages in the retail sale of consumer products and subscriptions in North America and internationally. It operates through the North America, International, and Amazon Web Services (AWS) segments. The company sells merchandise and content purchased for resale from vendors, as well as those offered by third-party sellers through retail Websites, such as amazon.com, amazon.ca, amazon.com.mx, amazon.com.au, amazon.com.br, amazon.cn, amazon.fr, amazon.de, amazon.in, amazon.it, amazon.co.jp, amazon.nl, amazon.es, and amazon.co.uk. It also manufactures and sells electronic devices, including kindle e-readers, fire tablets, fire TVs, and echo; and provides Kindle Direct Publishing, an online service that allows independent authors and publishers to make their books available in the Kindle Store. In addition, the company offers programs that enable sellers to sell their products on its Websites, as well as their own branded Websites; and programs that allow authors, musicians, filmmakers, app developers, and others to publish and sell content. Further, it provides compute, storage, database, and other AWS services, as well as fulfillment, publishing, digital content subscriptions, advertising, and co-branded credit card agreements services. Additionally, the company offers Amazon Prime, an annual membership program, which provides free shipping of various items; access to unlimited streaming of movies and TV episodes; and other services. It serves consumers, sellers, developers, enterprises, and content creators. The company was founded in 1994 and is headquartered in Seattle, Washington.

FINANCIAL RATIOS  of  Amazon.com (AMZN)

Valuation Ratios
P/E Ratio 201.9
Price to Sales 3.5
Price to Book 24.8
Price to Tangible Book
Price to Cash Flow 29.1
Price to Free Cash Flow 49.3
Growth Rates
Sales Growth Rate 27.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 46.8%
Cap. Spend. - 3 Yr. Gr. Rate 14.4%
Financial Strength
Quick Ratio 6
Current Ratio 0
LT Debt to Equity 78.9%
Total Debt to Equity 100.4%
Interest Coverage 14
Management Effectiveness
Return On Assets 3.4%
Ret/ On Assets - 3 Yr. Avg. 1.5%
Return On Total Capital 7.2%
Ret/ On T. Cap. - 3 Yr. Avg. 2.7%
Return On Equity 14.5%
Return On Equity - 3 Yr. Avg. 5.7%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 35.1%
Gross Margin - 3 Yr. Avg. 32.5%
EBITDA Margin 9%
EBITDA Margin - 3 Yr. Avg. 7.3%
Operating Margin 3.1%
Oper. Margin - 3 Yr. Avg. 1.8%
Pre-Tax Margin 2.9%
Pre-Tax Margin - 3 Yr. Avg. 1.4%
Net Profit Margin 1.7%
Net Profit Margin - 3 Yr. Avg. 0.7%
Effective Tax Rate 36.6%
Eff/ Tax Rate - 3 Yr. Avg. -17.8%
Payout Ratio 0%

AMZN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AMZN stock intrinsic value calculation we used $135987 million for the last fiscal year's total revenue generated by Amazon.com. The default revenue input number comes from 2016 income statement of Amazon.com. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AMZN stock valuation model: a) initial revenue growth rate of 22.4% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for AMZN is calculated based on our internal credit rating of Amazon.com, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Amazon.com.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AMZN stock the variable cost ratio is equal to 93.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $5102 million in the base year in the intrinsic value calculation for AMZN stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Amazon.com.

Corporate tax rate of 27% is the nominal tax rate for Amazon.com. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AMZN stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AMZN are equal to 19.4%.

Life of production assets of 3.7 years is the average useful life of capital assets used in Amazon.com operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AMZN is equal to -17.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $19285 million for Amazon.com - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 475.154 million for Amazon.com is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Amazon.com at the current share price and the inputted number of shares is $476.9 billion.


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Stock chart of AMZN Financial statements of AMZN Annual reports of AMZN
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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