Intrinsic value of Amazon.com - AMZN

Previous Close

$982.91

  Intrinsic Value

$534.47

stock screener

  Rating & Target

sell

-46%

Previous close

$982.91

 
Intrinsic value

$534.47

 
Up/down potential

-46%

 
Rating

sell

*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 472.2

 

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
  24.80
  22.82
  21.04
  19.43
  17.99
  16.69
  15.52
  14.47
  13.52
  12.67
  11.90
  11.21
  10.59
  10.03
  9.53
  9.08
  8.67
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
Revenue, $m
  135,987
  169,712
  208,440
  252,292
  301,322
  355,533
  414,877
  479,277
  548,629
  622,822
  701,739
  785,273
  873,329
  965,833
  1,062,734
  1,164,008
  1,269,661
  1,379,728
  1,494,274
  1,613,396
  1,737,219
  1,865,899
  1,999,618
  2,138,588
  2,283,047
  2,433,257
  2,589,508
  2,752,110
  2,921,403
  3,097,745
  3,281,522
Variable operating expenses, $m
 
  158,247
  194,273
  235,064
  280,674
  331,101
  386,304
  446,210
  510,723
  579,738
  653,148
  730,475
  812,386
  898,435
  988,574
  1,082,781
  1,181,061
  1,283,447
  1,390,000
  1,500,809
  1,615,991
  1,735,691
  1,860,079
  1,989,352
  2,123,730
  2,263,458
  2,408,805
  2,560,061
  2,717,540
  2,881,576
  3,052,529
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
  163,477
  199,633
  240,558
  286,306
  336,873
  392,221
  452,275
  516,939
  586,110
  659,679
  737,169
  819,248
  905,468
  995,783
  1,090,170
  1,188,635
  1,291,210
  1,397,957
  1,508,965
  1,624,351
  1,744,260
  1,868,862
  1,998,355
  2,132,958
  2,272,917
  2,418,500
  2,569,999
  2,727,726
  2,892,017
  3,063,231
Operating income, $m
  4,186
  6,235
  8,807
  11,733
  15,017
  18,659
  22,656
  27,002
  31,690
  36,712
  42,060
  48,104
  54,082
  60,365
  66,951
  73,838
  81,026
  88,518
  96,317
  104,431
  112,867
  121,638
  130,755
  140,233
  150,089
  160,340
  171,007
  182,112
  193,677
  205,728
  218,291
EBITDA, $m
  12,302
  13,198
  17,273
  21,900
  27,087
  32,832
  39,132
  45,976
  53,355
  61,256
  69,666
  78,573
  87,967
  97,840
  108,185
  119,002
  130,289
  142,051
  154,295
  167,030
  180,272
  194,035
  208,340
  223,210
  238,671
  254,751
  271,480
  288,894
  307,027
  325,921
  345,614
Interest expense (income), $m
  290
  532
  691
  1,206
  1,789
  2,442
  3,163
  3,952
  4,809
  5,731
  6,718
  7,768
  8,879
  10,051
  11,281
  12,570
  13,917
  15,323
  16,787
  18,311
  19,895
  21,542
  23,254
  25,033
  26,882
  28,803
  30,801
  32,880
  35,043
  37,295
  39,641
Earnings before tax, $m
  3,892
  5,703
  8,116
  10,527
  13,228
  16,218
  19,493
  23,050
  26,881
  30,981
  35,342
  40,336
  45,202
  50,315
  55,670
  61,268
  67,109
  73,195
  79,530
  86,120
  92,972
  100,096
  107,501
  115,200
  123,207
  131,537
  140,206
  149,232
  158,634
  168,433
  178,651
Tax expense, $m
  1,425
  1,540
  2,191
  2,842
  3,571
  4,379
  5,263
  6,223
  7,258
  8,365
  9,542
  10,891
  12,205
  13,585
  15,031
  16,542
  18,119
  19,763
  21,473
  23,252
  25,102
  27,026
  29,025
  31,104
  33,266
  35,515
  37,856
  40,293
  42,831
  45,477
  48,236
Net income, $m
  2,371
  4,163
  5,925
  7,685
  9,656
  11,839
  14,230
  16,826
  19,623
  22,616
  25,799
  29,445
  32,998
  36,730
  40,639
  44,726
  48,990
  53,432
  58,057
  62,868
  67,870
  73,070
  78,476
  84,096
  89,941
  96,022
  102,350
  108,939
  115,803
  122,956
  130,415

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
  71,669
  88,024
  106,542
  127,248
  150,141
  175,202
  202,397
  231,685
  263,016
  296,343
  331,619
  368,805
  407,869
  448,790
  491,558
  536,175
  582,655
  631,028
  681,333
  733,623
  787,964
  844,433
  903,120
  964,125
  1,027,558
  1,093,542
  1,162,209
  1,233,700
  1,308,169
  1,385,778
Adjusted assets (=assets-cash), $m
  57,421
  71,669
  88,024
  106,542
  127,248
  150,141
  175,202
  202,397
  231,685
  263,016
  296,343
  331,619
  368,805
  407,869
  448,790
  491,558
  536,175
  582,655
  631,028
  681,333
  733,623
  787,964
  844,433
  903,120
  964,125
  1,027,558
  1,093,542
  1,162,209
  1,233,700
  1,308,169
  1,385,778
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
  32,924
  40,437
  48,945
  58,457
  68,973
  80,486
  92,980
  106,434
  120,827
  136,137
  152,343
  169,426
  187,372
  206,170
  225,818
  246,314
  267,667
  289,889
  312,999
  337,020
  361,984
  387,926
  414,886
  442,911
  472,052
  502,364
  533,909
  566,752
  600,963
  636,615
Working capital, $m
  1,965
  -24,778
  -30,432
  -36,835
  -43,993
  -51,908
  -60,572
  -69,974
  -80,100
  -90,932
  -102,454
  -114,650
  -127,506
  -141,012
  -155,159
  -169,945
  -185,371
  -201,440
  -218,164
  -235,556
  -253,634
  -272,421
  -291,944
  -312,234
  -333,325
  -355,256
  -378,068
  -401,808
  -426,525
  -452,271
  -479,102
Total debt, $m
  19,354
  19,739
  34,458
  51,125
  69,760
  90,363
  112,918
  137,395
  163,753
  191,951
  221,945
  253,694
  287,161
  322,319
  359,148
  397,639
  437,794
  479,627
  523,162
  568,436
  615,498
  664,405
  715,227
  768,045
  822,949
  880,039
  939,425
  1,001,225
  1,065,567
  1,132,589
  1,202,437
Total liabilities, $m
  64,117
  64,502
  79,221
  95,888
  114,523
  135,126
  157,681
  182,158
  208,516
  236,714
  266,708
  298,457
  331,924
  367,082
  403,911
  442,402
  482,557
  524,390
  567,925
  613,199
  660,261
  709,168
  759,990
  812,808
  867,712
  924,802
  984,188
  1,045,988
  1,110,330
  1,177,352
  1,247,200
Total equity, $m
  19,285
  7,167
  8,802
  10,654
  12,725
  15,014
  17,520
  20,240
  23,168
  26,302
  29,634
  33,162
  36,880
  40,787
  44,879
  49,156
  53,617
  58,266
  63,103
  68,133
  73,362
  78,796
  84,443
  90,312
  96,412
  102,756
  109,354
  116,221
  123,370
  130,817
  138,578
Total liabilities and equity, $m
  83,402
  71,669
  88,023
  106,542
  127,248
  150,140
  175,201
  202,398
  231,684
  263,016
  296,342
  331,619
  368,804
  407,869
  448,790
  491,558
  536,174
  582,656
  631,028
  681,332
  733,623
  787,964
  844,433
  903,120
  964,124
  1,027,558
  1,093,542
  1,162,209
  1,233,700
  1,308,169
  1,385,778
Debt-to-equity ratio
  1.004
  2.750
  3.910
  4.800
  5.480
  6.020
  6.450
  6.790
  7.070
  7.300
  7.490
  7.650
  7.790
  7.900
  8.000
  8.090
  8.170
  8.230
  8.290
  8.340
  8.390
  8.430
  8.470
  8.500
  8.540
  8.560
  8.590
  8.610
  8.640
  8.660
  8.680
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
  4,163
  5,925
  7,685
  9,656
  11,839
  14,230
  16,826
  19,623
  22,616
  25,799
  29,445
  32,998
  36,730
  40,639
  44,726
  48,990
  53,432
  58,057
  62,868
  67,870
  73,070
  78,476
  84,096
  89,941
  96,022
  102,350
  108,939
  115,803
  122,956
  130,415
Depreciation, amort., depletion, $m
  8,116
  6,963
  8,466
  10,167
  12,070
  14,173
  16,476
  18,974
  21,665
  24,544
  27,606
  30,469
  33,885
  37,474
  41,234
  45,164
  49,263
  53,533
  57,978
  62,600
  67,404
  72,397
  77,585
  82,977
  88,582
  94,410
  100,473
  106,782
  113,350
  120,193
  127,323
Funds from operations, $m
  20,359
  11,126
  14,391
  17,852
  21,726
  26,012
  30,706
  35,801
  41,289
  47,160
  53,405
  59,914
  66,883
  74,204
  81,873
  89,889
  98,252
  106,966
  116,035
  125,467
  135,274
  145,467
  156,061
  167,073
  178,524
  190,432
  202,823
  215,721
  229,153
  243,149
  257,738
Change in working capital, $m
  3,916
  -4,924
  -5,654
  -6,402
  -7,159
  -7,915
  -8,664
  -9,402
  -10,125
  -10,832
  -11,522
  -12,196
  -12,856
  -13,506
  -14,148
  -14,786
  -15,425
  -16,070
  -16,724
  -17,392
  -18,078
  -18,787
  -19,523
  -20,290
  -21,091
  -21,931
  -22,813
  -23,740
  -24,717
  -25,746
  -26,831
Cash from operations, $m
  16,443
  16,050
  20,045
  24,254
  28,884
  33,927
  39,370
  45,203
  51,414
  57,992
  64,927
  72,110
  79,739
  87,710
  96,021
  104,675
  113,678
  123,035
  132,759
  142,859
  153,352
  164,254
  175,584
  187,363
  199,615
  212,363
  225,636
  239,461
  253,870
  268,895
  284,570
Maintenance CAPEX, $m
  0
  -5,280
  -6,585
  -8,087
  -9,789
  -11,691
  -13,795
  -16,097
  -18,596
  -21,287
  -24,165
  -27,227
  -30,469
  -33,885
  -37,474
  -41,234
  -45,164
  -49,263
  -53,533
  -57,978
  -62,600
  -67,404
  -72,397
  -77,585
  -82,977
  -88,582
  -94,410
  -100,473
  -106,782
  -113,350
  -120,193
New CAPEX, $m
  -6,737
  -6,525
  -7,513
  -8,507
  -9,512
  -10,517
  -11,513
  -12,493
  -13,454
  -14,393
  -15,310
  -16,206
  -17,083
  -17,946
  -18,799
  -19,647
  -20,497
  -21,353
  -22,222
  -23,110
  -24,022
  -24,964
  -25,942
  -26,960
  -28,025
  -29,141
  -30,313
  -31,545
  -32,843
  -34,210
  -35,653
Cash from investing activities, $m
  -9,876
  -11,805
  -14,098
  -16,594
  -19,301
  -22,208
  -25,308
  -28,590
  -32,050
  -35,680
  -39,475
  -43,433
  -47,552
  -51,831
  -56,273
  -60,881
  -65,661
  -70,616
  -75,755
  -81,088
  -86,622
  -92,368
  -98,339
  -104,545
  -111,002
  -117,723
  -124,723
  -132,018
  -139,625
  -147,560
  -155,846
Free cash flow, $m
  6,567
  4,245
  5,947
  7,660
  9,583
  11,718
  14,063
  16,612
  19,364
  22,312
  25,452
  28,677
  32,188
  35,879
  39,748
  43,794
  48,018
  52,420
  57,003
  61,772
  66,731
  71,886
  77,245
  82,818
  88,612
  94,640
  100,913
  107,443
  114,245
  121,334
  128,724
Issuance/(repayment) of debt, $m
  -3,740
  4,526
  14,719
  16,667
  18,635
  20,604
  22,555
  24,476
  26,359
  28,198
  29,994
  31,749
  33,467
  35,158
  36,829
  38,491
  40,155
  41,833
  43,535
  45,274
  47,061
  48,907
  50,822
  52,818
  54,904
  57,090
  59,386
  61,800
  64,343
  67,022
  69,848
Issuance/(repurchase) of shares, $m
  0
  5,559
  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
  10,085
  14,719
  16,667
  18,635
  20,604
  22,555
  24,476
  26,359
  28,198
  29,994
  31,749
  33,467
  35,158
  36,829
  38,491
  40,155
  41,833
  43,535
  45,274
  47,061
  48,907
  50,822
  52,818
  54,904
  57,090
  59,386
  61,800
  64,343
  67,022
  69,848
Total cash flow (excl. dividends), $m
  3,444
  14,330
  20,666
  24,326
  28,219
  32,322
  36,617
  41,089
  45,722
  50,510
  55,446
  60,425
  65,655
  71,036
  76,577
  82,285
  88,173
  94,252
  100,538
  107,046
  113,792
  120,793
  128,068
  135,636
  143,516
  151,730
  160,298
  169,243
  178,588
  188,356
  198,572
Retained Cash Flow (-), $m
  -5,901
  -9,722
  -1,635
  -1,852
  -2,071
  -2,289
  -2,506
  -2,720
  -2,929
  -3,133
  -3,333
  -3,528
  -3,719
  -3,906
  -4,092
  -4,277
  -4,462
  -4,648
  -4,837
  -5,030
  -5,229
  -5,434
  -5,647
  -5,869
  -6,100
  -6,343
  -6,598
  -6,867
  -7,149
  -7,447
  -7,761
Prev. year cash balance distribution, $m
 
  21,840
  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
 
  26,448
  19,031
  22,474
  26,148
  30,033
  34,111
  38,369
  42,794
  47,377
  52,113
  56,898
  61,936
  67,130
  72,485
  78,008
  83,711
  89,604
  95,701
  102,015
  108,563
  115,359
  122,421
  129,767
  137,416
  145,387
  153,700
  162,377
  171,439
  180,909
  190,811
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
 
  25,358
  17,422
  19,559
  21,530
  23,279
  24,756
  25,922
  26,747
  27,215
  27,321
  27,020
  26,430
  25,524
  24,334
  22,902
  21,273
  19,496
  17,624
  15,707
  13,795
  11,932
  10,158
  8,505
  6,999
  5,656
  4,484
  3,485
  2,652
  1,975
  1,437
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Amazon.com, Inc. offers a range of products and services through its Websites. The Company operates through three segments: North America, International and Amazon Web Services (AWS). The Company's products include merchandise and content that it purchases for resale from vendors and those offered by third-party sellers. It also manufactures and sells electronic devices. The Company, through its subsidiary, Whole Foods Market, Inc., offers healthy and organic food and staples across its stores. The Company also offers a range of products like whole trade bananas, organic avocados, organic large brown eggs, organic responsibly-farmed salmon and tilapia, organic baby kale and baby lettuce, animal-welfare-rated 85% lean ground beef, creamy and crunchy almond butter, organic gala and fuji apples, organic rotisserie chicken.

FINANCIAL RATIOS  of  Amazon.com (AMZN)

Valuation Ratios
P/E Ratio 197.7
Price to Sales 3.4
Price to Book 24.3
Price to Tangible Book
Price to Cash Flow 28.5
Price to Free Cash Flow 48.3
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 24.8% 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 -14.6%. 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 480.38 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 $472.2 billion.

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COMPANY NEWS

▶ Update: Amazon's local Treasure Truck makes first stop (PHOTOS)   [12:27AM  American City Business Journals]
▶ These 25 projects landed the biggest tax credits   [05:27PM  American City Business Journals]
▶ [$$] Microsoft Joins the Home-Speaker Party With Invoke   [Oct-20-17 11:03PM  The Wall Street Journal]
▶ Blue Apron Lays off Hundreds of Employees   [05:11PM  Motley Fool]
▶ How Does Facebook Compare To Amazon, Netflix And Google?   [04:07PM  Investor's Business Daily]
▶ Eyes on Quality of Alibabas Top-Line Growth   [03:05PM  Market Realist]
▶ Pick me: Orlando submits Amazon HQ2 proposal   [02:18PM  American City Business Journals]
▶ Massachusetts invites Amazon to join the Revolution with HQ2 bid   [02:10PM  American City Business Journals]
▶ Albany vs. Seattle: The case for Amazon's $5B headquarters   [02:05PM  American City Business Journals]
▶ A Look at Alibabas Top Line in Fiscal 2Q18   [01:36PM  Market Realist]
▶ Lord & Taylor to Team Up With Walmart.com   [01:08PM  InvestorPlace]
▶ Cranley: City offered Amazon same incentives given to GE   [12:48PM  American City Business Journals]
▶ Nike Inc Stock Isnt Worth Buying Right Now   [12:45PM  InvestorPlace]
▶ 15 Most Expensive Items You Can Buy on Amazon   [11:45AM  Insider Monkey]
▶ How FANG Stocks Lost Their Bite   [11:39AM  Bloomberg Video]
▶ Here's what Orlando's Amazon HQ2 proposal highlights   [11:25AM  American City Business Journals]
▶ Can Walmart Fight off Amazon?   [10:53AM  Forbes]
▶ Walmart partners with Lord & Taylor   [10:50AM  American City Business Journals]
▶ SHIPPED! Triad econ-dev officials send bid for Amazon's HQ2 project   [09:58AM  American City Business Journals]
▶ [$$] Microsoft Joins the Home-Speaker Party With Invoke   [09:55AM  The Wall Street Journal]
▶ Walmart Is Running Itself Like a Startup   [07:59AM  TheStreet.com]
▶ Here are the sites Boston pitched to Amazon for HQ2   [04:46AM  American City Business Journals]
▶ 3 Heirloom Stocks to Hold Forever   [Oct-19-17 09:33PM  Motley Fool]
▶ Online apparel retailer Stitch Fix aims to sew up its own IPO   [06:15PM  American City Business Journals]
▶ Heres how much rents could rise in Amazons HQ2 city of choice   [05:57PM  American City Business Journals]
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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