An Amazon Retrospective | The Acquirer's Multiple®

In their latest episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discuss An Amazon Retrospective. Here’s an excerpt from the episode:

Jake: Yeah, or off the rails here. For sure. All right. This is precipitated from messing around. Just curious. Wanted to go look at Amazon’s financials, because it’s been a while since I looked. And so, let’s start with over the last 15 years. Let’s go through the order of growth rate. What’s been growing the fastest within this company? These are CAGRs over the last 15 years. All right, coming in at number six, we have book value at 22% CAGR. All right. You could say like, “Book value doesn’t really mean very much for a company like Amazon.” I’m fine with that. Number five, we have stock price at 24% CAGR. All right. Number four, we have revenue at 26%. So, that might surprise some people that actually revenue is growing faster than the stock price over the last 15 years.

Number three, EBIT actually coming in at a 27% CAGR. And so, those are the good news. Here’s number two and number one that might not be as good news. Number two, full time employees growing at 35% compound annual growth rate. That’s interesting to me, all these cap light businesses. And number one, growing at 45% CAGR for 15. years.

Tobias: SBC.

Jake: Capex.

Tobias: Capex.

Jake: Capex. A lot of money pouring into Amazon and building permanent infrastructure or at least, hopefully, relatively permanent, but growing at a much faster clip than a lot of the other variables. I thought it might be interesting to if– And granted. Okay. Extrapolation is the first tool of ignorance. You shouldn’t put anything into this. But it’s just fun mental exercise. If we use the last 15 years growth rates and used it for the next 10 years, what would that imply about Amazon as a company? Okay. So, book value, starting off at $131 billion growing at a 22% CAGR for 10 years. That gets you to $957 billion book value. So, almost a trillion dollars of book value in 10 years. All right. Revenue starting off at $470 billion growing at a 26% CAGR. That’s almost $5 trillion of revenue implied in 10 years, which is about 25% of today’s US GDP.

One of every $4 of US GDP today, it would be going through Amazon’s turnstile. That implies a relatively large business. EBIT at $112 billion starting point, 27%. CAGR. Gets you to $1.2 trillion EBIT 10 years from now, which is about 35% of today’s $3.5 billion pretax corporate profits. Full-time employees starting at $1.6 million and growing at 35% clip would give you 32 million full time employees, which is about 20% of today’s civilian labor force. Imagine 20% of the people working for Amazon. And then finally, Capex at $61 billion today, growing at 45% clip, get you to $2.5 trillion in Capex for 10 years from now, which obviously, that’s a very large number. And then finally, market cap at $1.17 trillion today. There abouts at a 24% CAGR, gets you to $10 trillion, which is about 30% of today’s S&P 500 market cap. Those are obviously some very, very large numbers that are implied, if you were to use growth rates of the past to these various metrics. Okay.

Another analysis that might be interesting to see. I took the cumulative last 15 years of results and then compare those two different things. In the last 15 years, Amazon has had $2.2 trillion of cumulative revenue that’s come in over the last 15 years. Today’s market cap at $1.17 trillion implies that it’s a 1.8 basically cumulative revenue to today’s market cap. Basically, for every dollar and 80 cents that has come into revenue or come into Amazon over the last 15 years, you’re paying $1 of market cap for that.

Let’s do a little for reference. Let’s talk about Berkshire over the last 15 years. Revenue of $2.82 trillion. Actually, Berkshires had more revenue over the last 15 years than Amazon, which might be a little bit surprising. And they’re priced based on a $600 billion dollar market cap to 15 years’ worth of revenue is it’s 4.71 times cumulative revenue to market cap. Basically, $4.71 has come into the door over the last 15 years compared for every $1 of market cap assigned today. 4.7 versus 1.8 effectively.

Now, let’s look at cash flow from operations. And cumulative last 15 years, Amazon’s at $259 billion of cumulative over last 15. And so, that gives you a price to 15-year cumulative cash flow of 4.5, whereas at Berkshire, it’s $424 billion. Almost double the amount of cash flow and obviously, on a much lower price. You end up then at a 1.4 price to 15 years total cumulative cash flow. And then total Capex actually is a little surprising last 15 years. $172 billion for Amazon and $163 billion for Berkshire. Actually, comparable revenue and Capex over the last 15 years for two companies, but pretty dramatically different prices as far as what you’re paying for that. I don’t know. I find that to be more interesting different analysis than what I’ve seen for Amazon.

Bill: It should be different. One’s an insurance conglomerate with an old man running it and the other is Amazon. I’ll tell you what’s beautiful that you missed. This is a thing of beauty. Hang on here.

Tobias: It’s got no real debt, doesn’t it?

Bill: Well, this is what I’m about to say.

Tobias: Okay.

Bill: $10 billion of debt maturing after 2052, they issued 3.95 paper maturing 2052, four and a quarter 57. 2.7 at 60. 4.1, 2062, oh, my God.

Tobias: You should get those blokes running the Treasury. [crosstalk]

Bill: Good job to the CFO. Yeah.

Jake: Now, do Berkshire’s.

Bill: Yeah. Well, they’re doing a good job too. No doubt.

Jake: Zero.

Bill: Oh, no, Berkshire has been issuing debt.

Jake: No, no, no, zero interest rate. Yen.

Bill: Oh, yeah. Yeah, the Buff dawg, he’s good financial analyst. [crosstalk] I think Amazon has done a good job at their end. If you’re going to [crosstalk] step on competition now…

Tobias: What’s the–? [crosstalk]

Bill: Use the debt markets to fund it, especially if you think rates are going up.

Tobias: What’s Amazon’s debt like? It’s basically material, right?

Bill: Oh, no, they got some debt.

Tobias: How much is it?

Bill: I don’t know. $30 billion or so.

Tobias: Oh, okay. Yes. I’m just looking at– [crosstalk]

Jake: What, market cap to– [crosstalk]

Tobias: On JT’s numbers. Yeah. On JTs numbers.

Bill: No, $142 billion. $82 billion of net debt. Sorry.

Tobias: If you project forward on that analysis that you did, you get EBIT of $1.2 trillion by that terminal date and a market cap of $10 trillion. It’s only 8x. That’s reasonably good value for something that big, I would’ve thought.

Bill: That’s why Buffett’s buying it.

Tobias: Amazon?

Bill: Yeah.

Tobias: That’s one of the boys, isn’t? Ted or Todd?

Bill: Well, it’s in the house.

Jake: [laughs]

Tobias: And that’s interesting. You could get reasonably high rates of growth for a decade, so be on modest. It’s probably pretty good value.

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