Intrinsic value of Amazon.com - AMZN

Previous Close

$958.47

  Intrinsic Value

$870.28

stock screener

  Rating & Target

hold

-9%

  Value-price divergence*

+177%

Previous close

$958.47

 
Intrinsic value

$870.28

 
Up/down potential

-9%

 
Rating

hold

 
Value-price divergence*

+177%

*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 455.4

 

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
  22.60
  20.84
  19.26
  17.83
  16.55
  15.39
  14.35
  13.42
  12.58
  11.82
  11.14
  10.52
  9.97
  9.47
  9.03
  8.62
  8.26
  7.94
  7.64
  7.38
  7.14
  6.93
  6.73
  6.56
  6.40
  6.26
  6.14
  6.02
  5.92
  5.83
Revenue, $m
  135,987
  166,720
  201,465
  240,259
  283,098
  329,943
  380,730
  435,377
  493,796
  555,897
  621,596
  690,822
  763,517
  839,646
  919,191
  1,002,160
  1,088,584
  1,178,515
  1,272,032
  1,369,237
  1,470,252
  1,575,225
  1,684,321
  1,797,730
  1,915,659
  2,038,335
  2,166,006
  2,298,937
  2,437,412
  2,581,734
  2,732,223
Variable operating expenses, $m
 
  155,464
  187,784
  223,871
  263,721
  307,297
  354,540
  405,374
  459,716
  517,483
  578,598
  642,614
  710,237
  781,053
  855,048
  932,227
  1,012,619
  1,096,275
  1,183,267
  1,273,688
  1,367,654
  1,465,301
  1,566,785
  1,672,279
  1,781,979
  1,896,095
  2,014,857
  2,138,511
  2,267,323
  2,401,574
  2,541,561
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
  160,694
  193,144
  229,365
  269,353
  313,069
  360,457
  411,439
  465,932
  523,855
  585,129
  649,308
  717,099
  788,086
  862,257
  939,616
  1,020,193
  1,104,038
  1,191,224
  1,281,844
  1,376,014
  1,473,870
  1,575,568
  1,681,282
  1,791,207
  1,905,554
  2,024,552
  2,148,449
  2,277,509
  2,412,015
  2,552,263
Operating income, $m
  4,186
  6,026
  8,320
  10,893
  13,745
  16,873
  20,273
  23,939
  27,864
  32,042
  36,467
  41,513
  46,419
  51,560
  56,935
  62,544
  68,390
  74,477
  80,808
  87,393
  94,238
  101,354
  108,753
  116,447
  124,452
  132,782
  141,454
  150,488
  159,903
  169,719
  179,960
EBITDA, $m
  12,302
  9,639
  12,607
  15,933
  19,616
  23,653
  28,038
  32,763
  37,822
  43,205
  48,905
  54,915
  61,231
  67,849
  74,767
  81,986
  89,509
  97,340
  105,486
  113,956
  122,761
  131,913
  141,429
  151,323
  161,615
  172,325
  183,475
  195,088
  207,189
  219,805
  232,965
Interest expense (income), $m
  290
  532
  1,008
  1,544
  2,143
  2,805
  3,528
  4,312
  5,156
  6,058
  7,017
  8,031
  9,100
  10,223
  11,398
  12,627
  13,908
  15,242
  16,631
  18,075
  19,576
  21,136
  22,757
  24,441
  26,192
  28,013
  29,908
  31,879
  33,932
  36,070
  38,298
Earnings before tax, $m
  3,892
  5,494
  7,312
  9,349
  11,602
  14,069
  16,745
  19,626
  22,708
  25,984
  29,450
  33,482
  37,318
  41,337
  45,536
  49,917
  54,482
  59,234
  64,177
  69,318
  74,662
  80,218
  85,996
  92,006
  98,259
  104,768
  111,547
  118,609
  125,971
  133,650
  141,662
Tax expense, $m
  1,425
  1,483
  1,974
  2,524
  3,133
  3,799
  4,521
  5,299
  6,131
  7,016
  7,952
  9,040
  10,076
  11,161
  12,295
  13,478
  14,710
  15,993
  17,328
  18,716
  20,159
  21,659
  23,219
  24,842
  26,530
  28,287
  30,118
  32,024
  34,012
  36,085
  38,249
Net income, $m
  2,371
  4,010
  5,338
  6,825
  8,470
  10,270
  12,224
  14,327
  16,577
  18,968
  21,499
  24,442
  27,242
  30,176
  33,241
  36,440
  39,772
  43,241
  46,850
  50,602
  54,503
  58,559
  62,777
  67,164
  71,729
  76,481
  81,429
  86,585
  91,959
  97,564
  103,413

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
  84,544
  102,163
  121,835
  143,559
  167,314
  193,068
  220,779
  250,404
  281,895
  315,211
  350,315
  387,179
  425,784
  466,121
  508,195
  552,020
  597,624
  645,047
  694,339
  745,564
  798,795
  854,118
  911,628
  971,429
  1,033,639
  1,098,380
  1,165,790
  1,236,010
  1,309,196
  1,385,508
Adjusted assets (=assets-cash), $m
  57,421
  84,544
  102,163
  121,835
  143,559
  167,314
  193,068
  220,779
  250,404
  281,895
  315,211
  350,315
  387,179
  425,784
  466,121
  508,195
  552,020
  597,624
  645,047
  694,339
  745,564
  798,795
  854,118
  911,628
  971,429
  1,033,639
  1,098,380
  1,165,790
  1,236,010
  1,309,196
  1,385,508
Revenue / Adjusted assets
  2.368
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
  1.972
Average production assets, $m
  26,399
  32,344
  39,084
  46,610
  54,921
  64,009
  73,862
  84,463
  95,796
  107,844
  120,590
  134,019
  148,122
  162,891
  178,323
  194,419
  211,185
  228,632
  246,774
  265,632
  285,229
  305,594
  326,758
  348,760
  371,638
  395,437
  420,205
  445,994
  472,858
  500,856
  530,051
Working capital, $m
  1,965
  -16,672
  -20,146
  -24,026
  -28,310
  -32,994
  -38,073
  -43,538
  -49,380
  -55,590
  -62,160
  -69,082
  -76,352
  -83,965
  -91,919
  -100,216
  -108,858
  -117,851
  -127,203
  -136,924
  -147,025
  -157,522
  -168,432
  -179,773
  -191,566
  -203,834
  -216,601
  -229,894
  -243,741
  -258,173
  -273,222
Total debt, $m
  19,354
  28,790
  44,118
  61,233
  80,133
  100,800
  123,206
  147,315
  173,088
  200,486
  229,471
  260,011
  292,083
  325,669
  360,763
  397,367
  435,494
  475,170
  516,428
  559,312
  603,878
  650,189
  698,320
  748,353
  800,380
  854,503
  910,828
  969,474
  1,030,566
  1,094,237
  1,160,629
Total liabilities, $m
  64,117
  73,553
  88,881
  105,996
  124,896
  145,563
  167,969
  192,078
  217,851
  245,249
  274,234
  304,774
  336,846
  370,432
  405,526
  442,130
  480,257
  519,933
  561,191
  604,075
  648,641
  694,952
  743,083
  793,116
  845,143
  899,266
  955,591
  1,014,237
  1,075,329
  1,139,000
  1,205,392
Total equity, $m
  19,285
  10,991
  13,281
  15,839
  18,663
  21,751
  25,099
  28,701
  32,552
  36,646
  40,977
  45,541
  50,333
  55,352
  60,596
  66,065
  71,763
  77,691
  83,856
  90,264
  96,923
  103,843
  111,035
  118,512
  126,286
  134,373
  142,789
  151,553
  160,681
  170,195
  180,116
Total liabilities and equity, $m
  83,402
  84,544
  102,162
  121,835
  143,559
  167,314
  193,068
  220,779
  250,403
  281,895
  315,211
  350,315
  387,179
  425,784
  466,122
  508,195
  552,020
  597,624
  645,047
  694,339
  745,564
  798,795
  854,118
  911,628
  971,429
  1,033,639
  1,098,380
  1,165,790
  1,236,010
  1,309,195
  1,385,508
Debt-to-equity ratio
  1.004
  2.620
  3.320
  3.870
  4.290
  4.630
  4.910
  5.130
  5.320
  5.470
  5.600
  5.710
  5.800
  5.880
  5.950
  6.010
  6.070
  6.120
  6.160
  6.200
  6.230
  6.260
  6.290
  6.310
  6.340
  6.360
  6.380
  6.400
  6.410
  6.430
  6.440
Adjusted equity ratio
  -0.117
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,371
  4,010
  5,338
  6,825
  8,470
  10,270
  12,224
  14,327
  16,577
  18,968
  21,499
  24,442
  27,242
  30,176
  33,241
  36,440
  39,772
  43,241
  46,850
  50,602
  54,503
  58,559
  62,777
  67,164
  71,729
  76,481
  81,429
  86,585
  91,959
  97,564
  103,413
Depreciation, amort., depletion, $m
  8,116
  3,613
  4,287
  5,039
  5,870
  6,779
  7,765
  8,825
  9,958
  11,163
  12,437
  13,402
  14,812
  16,289
  17,832
  19,442
  21,119
  22,863
  24,677
  26,563
  28,523
  30,559
  32,676
  34,876
  37,164
  39,544
  42,021
  44,599
  47,286
  50,086
  53,005
Funds from operations, $m
  20,359
  7,623
  9,625
  11,864
  14,340
  17,049
  19,989
  23,152
  26,535
  30,131
  33,936
  37,844
  42,055
  46,465
  51,074
  55,882
  60,891
  66,104
  71,527
  77,165
  83,026
  89,119
  95,453
  102,040
  108,893
  116,025
  123,450
  131,184
  139,245
  147,650
  156,418
Change in working capital, $m
  3,916
  -3,073
  -3,474
  -3,879
  -4,284
  -4,685
  -5,079
  -5,465
  -5,842
  -6,210
  -6,570
  -6,923
  -7,270
  -7,613
  -7,955
  -8,297
  -8,642
  -8,993
  -9,352
  -9,720
  -10,102
  -10,497
  -10,910
  -11,341
  -11,793
  -12,268
  -12,767
  -13,293
  -13,848
  -14,432
  -15,049
Cash from operations, $m
  16,443
  10,697
  13,099
  15,744
  18,624
  21,734
  25,067
  28,617
  32,377
  36,341
  40,506
  44,766
  49,324
  54,078
  59,028
  64,179
  69,533
  75,097
  80,879
  86,886
  93,128
  99,616
  106,363
  113,381
  120,686
  128,292
  136,217
  144,477
  153,092
  162,082
  171,467
Maintenance CAPEX, $m
  0
  -2,640
  -3,234
  -3,908
  -4,661
  -5,492
  -6,401
  -7,386
  -8,446
  -9,580
  -10,784
  -12,059
  -13,402
  -14,812
  -16,289
  -17,832
  -19,442
  -21,119
  -22,863
  -24,677
  -26,563
  -28,523
  -30,559
  -32,676
  -34,876
  -37,164
  -39,544
  -42,021
  -44,599
  -47,286
  -50,086
New CAPEX, $m
  -6,737
  -5,945
  -6,740
  -7,526
  -8,311
  -9,088
  -9,853
  -10,602
  -11,333
  -12,048
  -12,746
  -13,430
  -14,103
  -14,769
  -15,432
  -16,096
  -16,766
  -17,447
  -18,142
  -18,858
  -19,597
  -20,365
  -21,165
  -22,001
  -22,878
  -23,799
  -24,768
  -25,789
  -26,864
  -27,998
  -29,195
Cash from investing activities, $m
  -9,876
  -8,585
  -9,974
  -11,434
  -12,972
  -14,580
  -16,254
  -17,988
  -19,779
  -21,628
  -23,530
  -25,489
  -27,505
  -29,581
  -31,721
  -33,928
  -36,208
  -38,566
  -41,005
  -43,535
  -46,160
  -48,888
  -51,724
  -54,677
  -57,754
  -60,963
  -64,312
  -67,810
  -71,463
  -75,284
  -79,281
Free cash flow, $m
  6,567
  2,112
  3,125
  4,309
  5,652
  7,154
  8,814
  10,629
  12,597
  14,714
  16,976
  19,277
  21,819
  24,497
  27,307
  30,250
  33,325
  36,532
  39,873
  43,350
  46,967
  50,728
  54,639
  58,704
  62,932
  67,329
  71,905
  76,668
  81,629
  86,798
  92,186
Issuance/(repayment) of debt, $m
  -3,740
  13,577
  15,328
  17,115
  18,900
  20,667
  22,406
  24,109
  25,773
  27,397
  28,985
  30,541
  32,072
  33,586
  35,094
  36,604
  38,128
  39,676
  41,258
  42,884
  44,566
  46,311
  48,131
  50,033
  52,027
  54,122
  56,325
  58,646
  61,092
  63,671
  66,392
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
  13,577
  15,328
  17,115
  18,900
  20,667
  22,406
  24,109
  25,773
  27,397
  28,985
  30,541
  32,072
  33,586
  35,094
  36,604
  38,128
  39,676
  41,258
  42,884
  44,566
  46,311
  48,131
  50,033
  52,027
  54,122
  56,325
  58,646
  61,092
  63,671
  66,392
Total cash flow (excl. dividends), $m
  3,444
  15,689
  18,453
  21,424
  24,552
  27,821
  31,220
  34,738
  38,370
  42,111
  45,961
  49,818
  53,891
  58,083
  62,401
  66,854
  71,453
  76,208
  81,131
  86,235
  91,533
  97,040
  102,769
  108,737
  114,959
  121,451
  128,230
  135,314
  142,721
  150,469
  158,579
Retained Cash Flow (-), $m
  -5,901
  -2,011
  -2,290
  -2,557
  -2,824
  -3,088
  -3,348
  -3,603
  -3,851
  -4,094
  -4,331
  -4,564
  -4,792
  -5,019
  -5,244
  -5,470
  -5,697
  -5,929
  -6,165
  -6,408
  -6,659
  -6,920
  -7,192
  -7,476
  -7,774
  -8,087
  -8,416
  -8,763
  -9,129
  -9,514
  -9,921
Prev. year cash balance distribution, $m
 
  10,306
  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
 
  23,983
  16,162
  18,867
  21,728
  24,733
  27,872
  31,136
  34,519
  38,017
  41,630
  45,254
  49,099
  53,064
  57,157
  61,385
  65,756
  70,279
  74,966
  79,827
  84,874
  90,120
  95,578
  101,261
  107,185
  113,364
  119,814
  126,551
  133,592
  140,955
  148,658
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
 
  22,994
  14,796
  16,419
  17,891
  19,171
  20,228
  21,035
  21,575
  21,839
  21,825
  21,491
  20,952
  20,176
  19,189
  18,022
  16,710
  15,292
  13,806
  12,291
  10,785
  9,321
  7,930
  6,637
  5,459
  4,410
  3,496
  2,716
  2,067
  1,539
  1,119
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 192.8
Price to Sales 3.4
Price to Book 23.7
Price to Tangible Book
Price to Cash Flow 27.8
Price to Free Cash Flow 47.1
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 22.6% 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 10 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 -10%. 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 $455.4 billion.

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Stock chart of AMZN Financial statements 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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