Valuation Winter 2010 By Michael Swiericzuk Amazon.com, Inc.

ValuationValuationWinter 2010Winter 2010

By Michael Swiericzuk

Amazon.com, Inc.

Amazon’s offerings 20,000ft

Offers web-based services to:• Consumers• Product Sellers• Web Business Developers +• “Manufactures” the Kindle

Swiericzuk - Amazon.com Valuation March 2010

Sources:•Books and Music (media)•Product Sales (electronics etc)•Seller Branded Websites•Co-branded credit card agreements •Marketing and promotional services•Online advertising

Revenue


Two operational segments: 1.North America 2.International

Three sales segments:1.Media2.Electronics and General Merchandise3.Other

Organizational StructureOrganizational Structure


Sales year over year 2009North America: 20%International: 37%Consolidated: 29% (ex. Exchange Rates)

Acquisitions•November 2009 – Zappos 2009•February 2010 – Touchco

Growth


InternationalN. America

2009 Revenue: $24.5B

International

N. America

2008 Revenue: $19.1 B

N. America

International

2007 Revenue: $14.8 B


Sales Proportions 2007-2009


Revenue and Net Income


Why is Amazon so successful?

•Management - stable and experienced

•Systems Focused - constant Improvement

•Customer Focused - shipping and easy use- security

•Product Prices- not the cheapest


Amazon’s Management

•Performance•Consistent Growth•International Expansion•Cost control

•2008-2010•Growth – really strong growth•Beat the “Street”•Paid down Debt


•Consistent Growth•Stable Growth•Cost Control•International Expansion•Constant Improvement•Lead in ecommerce•Customer satisfaction

Amazon.com StrategyAmazon.com Strategy


Where’s the Debt?

What does this do to WACC?

Equity Debt Preferred

Stock Capital

Market Value 55,850* 425** -

$56.275B Weight 0.99 0.01 0.00 100.00%Cost 11.17% 5.38% 0.00% 11.13%*Market Cap 03/03/2010 according to CNBC.com**Market Value of Debt


Amazon’s Risks•Competition (BKS, EBAY, WMT,

AAPL)•Business Model•Publishers and Record Companies•Growth•Invest away from core competencies

2000-2001Swiericzuk - Amazon.com Valuation March 2010

Amazon today

Price: $126.00 (03/03/2010)

52 week range: $59.82-$145.91Beta: 1.12-1.29*PE: 61.5PEG: 1.46Market Cap: $55.8 BillionShares: 444.55ROA (5 yr): 8.20ROE (5yr): 36.06*Taken from CNBC.com, Morningstar and Reuters .com 03/03/2010*

Amazon – 12 month chart


What is Amazon worth?

Valuation Model and Considerations:•FCFF 3 stage model (high growth → stable growth → perpetuity)

•Growth rates•Cap Ex and Depreciation•Tax Rate•Pre-tax operating margin•Amazon’s Debt (borrowing? cost?)•Long Term Bond Rate – 4.4%•Risk Premium – 5.17%


High Growth Period 2010-2014Current pre-tax operating margin 4.61%Pre-tax operating margin at end of period 7.00%% of debt in financing investments 2%Growth rate in CAPEX & depreciation 25.00%Working capital (% of revenues) 8.00%Real tax rate 21.78%Beta 1.05Current long term bond rate 4.40%Historical market risk premium 5.17%Cost of borrowing money 4.50%

Stable Period 2015-PerpetuityCAGR at Perpetuity 4.00%Pre-tax operating margin in perpetuity 7.00%Return on capital in perpetuity 8.00%% of Debt used in financing investments 10.00%Average interest rate of debt 7.50%Beta 1.00

Model Inputs


Valuation for Amazon.com, Inc.

Value of Firm $ 69,726

+ Cash and marketable securities = $ 3,444

- Value of Debt $ 425

Value of Equity $ 72,745

- Value of Equity options issued by firm $ 2,210

Value of Equity per Share $ 158.67

$158.67 is 36% above today’s value – BUY!


FCFF Model SensitivityBeta 0.9 $ 164.80

1.0 $ 151.88 1.3 $ 150.28 1.5 $ 163.26

% Debt (Growth Period) 1% $ 149.80 5% $ 151.72

10% $ 154.16

% Debt (Stable Period) 1% $ 140.76 5% $ 144.84

10% $ 150.28 20% $ 162.45

Cost of Debt in Perpetuity 4% $ 177.91 8% $ 160.53

12% $ 147.16


Proposed Growth Rates

AMAZON.comYear 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025International Growth 38% 38% 37% 37% 36% 35% 27% 25% 22% 20% 17% 14% 11% 9% 7% 5% 4%

International Portion of Amazon's revenue 48% 50% 52% 54% 56% 58% 60% 62% 64% 66% 68% 70% 72% 74% 76% 78% 80%

North American Growth 20% 20% 20% 20% 20% 19% 19% 17% 15% 13% 11% 9% 8% 7% 6% 5% 4%

North American Portion of Amazon's revenue 52% 50% 48% 46% 44% 42% 40% 38% 36% 34% 32% 30% 28% 26% 24% 22% 20%

Consolidated growth rate 29% 29% 29% 29% 29% 28% 24% 22% 20% 18% 15% 13% 10% 8% 6% 5% 4%

Growth rates used in the modelGrowth rates used in the model



?

Valuation Winter 2010 By Michael Swiericzuk Amazon.com, Inc.

Documents

Transcript of Valuation Winter 2010 By Michael Swiericzuk Amazon.com, Inc.