Omar Ben Ayed
๐Ÿคทโ€โ™‚๏ธ ๐—” ๐˜†๐—ผ๐˜‚๐—ป๐—ด ๐—ด๐—ถ๐—ฎ๐—ป๐˜ ? Amazon.com, Inc. is an online retailer that offers a wide range of products. The Company products include books, music, computers, electronics, and numerous other products. Amazon offers personalized shopping services, Web-based credit card payment, and direct shipping to customers. Amazon also operates a cloud platform offering services globally. (Bloomberg 2021) $AMZN (Amazon) has had great returns over the last past 5 years and is obviously the biggest player in the internet & direct marketing retail industry. ๐Ÿ›’ ๐—”๐—ฟ๐—ฒ ๐˜๐—ต๐—ฒ๐—ฟ๐—ฒ ๐—ฐ๐—ฟ๐—ฒ๐—ฑ๐—ถ๐˜ ๐—ฟ๐—ถ๐˜€๐—ธ๐˜€ ? Amazon hosts good credit ratios: ๐€๐ฅ๐ญ๐ฆ๐š๐ง ๐™-๐’๐œ๐จ๐ซ๐ž = 6 (Extremely low risk of default) ๐๐ข๐จ๐ญ๐ซ๐จ๐ฌ๐ค๐ข ๐…-๐’๐œ๐จ๐ซ๐ž = 5/9 (Average financial improvements) ๐๐ž๐ง๐ž๐ข๐ฌ๐ก ๐Œ-๐’๐œ๐จ๐ซ๐ž = -2.92 (Low risk of earnings manipulation) Currently the company is trading at a high price to book multiple and the company cash flows can largely cover its interest payments. The reason behind the high P/B ratio is a high weight in goodwill and intangible assets. Besides this the company is profitable unlike many other tech companies. Overall, Amazon has a good risk profile as an investment. However, the context in which the company operates is also important. ๐Ÿด ๐—–๐—ผ๐—ป๐˜๐—ฒ๐˜…๐˜ Recently, Jeff Bezos retired from the CEO position and has been replaced by Andy Jassy. Jassy has been directing the Amazon Web Services (AWS) segment ever since 2013. In other words, we might see growth in the cloud segment, and we might see AWS become more central to Amazon. With $MSFT (Microsoft) slowly closing the gap in the cloud market, this change might help stop Microsoft on its tracks. Moreover, by 2025, the Gross Merchandise Value (GMV) might rise to over $900 billion in 2025. This growth in e-commerce strength will be detrimental to keep Amazonโ€™s stock price growing. The worst-case scenario would be $750 billion in 2025. Besides online sales, physical store sales are also growing, and AWS sales can potentially reach the one tenth of a trillion mark by 2024. Amazon is also developing its Pharma segment which could help reach even higher revenues as the company captures prescription sales (which carry high margins). However, it is not all pink and roses as Amazon will face antitrust lawsuits and regulations in the future. It is not profitable from a social welfare perspective if Amazon becomes a monopoly in specific industry. For a monopoly to exist, unlike popular belief, you do not need to have the whole 100% market share. ๐Ÿ’ฒ ๐—ฉ๐—ฎ๐—น๐˜‚๐—ฎ๐˜๐—ถ๐—ผ๐—ป 5 valuations were done to figure out the intrinsic value of Amazon's stock. They give a fair value of $๐Ÿฏ๐Ÿญ๐Ÿฒ๐Ÿฐ. Some of the assumptions (averages) utilized were: - 7% CAPEX rate -6.9% Depreciation rate -17% Revenue growth In comparison analysts propose an average 12-month target price of $4057. My valuations are therefore on the bearish side of things. Regards, Omar Peers used for analysis: $MSFT $EBAY (eBay) $WMT (Wal-Mart) $MELI (MercadoLibre) COST IBM
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