In this week’s video blog post, I fundamentally analyze Amazon’s stock. I look at Amazon’s business segments, review the key ratios, derive the intrinsic value using Discounted Cash Flow (DCF) analysis, and look at expected rate of return from this investment.
In the recent months, Amazon has gained a lot of attention since it is a key online retailer during this ongoing pandemic. As value investors, it is important to review the company’s fundamentals before deciding to invest in any company. Hope you all find this 11 minute video blog interesting. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
Amazon is divided into 3 business segments – North American, International, and Amazon Web Services (AWS). The North American segment has a operating profit margin of about 4%. The AWS segment has the greatest operating profit margin i.e. 26%. Operating profit margin is a ratio of operating income to net sales. Lastly, for the past 3 years, Amazon has been making a loss in it’s international business segment.
After taking into account the current free cash flow of $26,957 million figure, a 15% growth rate, 12% discount rate, 3% long term growth rate, 507 million shares outstanding, and $23,414 million of long term debt, the DCF analysis yields us an intrinsic value of $1,385 per share. Using the current stock price of about $3,300 per share, and taking into account the past 10 years of free cash flows and future projects of free cash flows, we get the expected rate of return of 0.2%.
Timestamp
0:00 Introduction
0:30 Business Segments
1:49 Key Ratios Analysis
6:25 Discounted Cash Flow Analysis / Intrinsic Value
8:03 Expected Rate of Return Calculation
9:45 Conclusion
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References:
10K Annual Report: here
Morningstar Key Ratios Link: here.
Useful Resources here.
Company overview: Amazon.com, Inc., is an American multinational technology company based in Seattle, Washington. Amazon focuses on e-commerce, cloud computing, digital streaming, and artificial intelligence. It is considered one of the Big Four technology companies, along with Google, Apple, and Facebook.
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