The Amazon.com Inc (AMZN) DCF Valuation: Is The Stock Undervalued?
Thursday, December 7, 2023 · Johnny Hopkins
As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that are not currently in our screens, Amazon.com Inc (AMZN).
Profile
Amazon is a leading online retailer and one of the highest-grossing e-commerce aggregators, with $386 billion in net sales and approximately $578 billion in estimated physical/digital online gross merchandise volume in 2021. Retail-related revenue represents approximately 80% of the total, followed by Amazon Web Services’ cloud computing, storage, database, and other offerings (10%-15%), advertising services (5%), and other. International segments constitute 25%-30% of Amazon’s non-AWS sales, led by Germany, the United Kingdom, and Japan.
Recent Performance
Over the past twelve months the share price is up 66.39%.
Inputs
- Discount Rate: 8.90%
- Terminal Growth Rate: 2%
- WACC: 8.90%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2024 | 24 | 22.04 |
| 2025 | 29 | 24.45 |
| 2026 | 35 | 27.10 |
| 2027 | 42 | 29.86 |
| 2028 | 50 | 32.65 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 739.13 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 482.59 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 136.10 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 618.70 billion
Net Debt
Net Debt = Total Debt – Total Cash = 13.26 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 605.44 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $58.67
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $58.67 | $146.84 | -150.30% |
Based on the DCF valuation, the stock is overvalued. The DCF value of $58.67 per share is lower than the current market price of $146.84. The Margin of Safety is -150.30%.
It is important to note that this valuation is based on a number of assumptions, and these assumptions could change in the future. This valuation is meant to be a back-of-the-envelope analyse that could be used as a starting point in a much more thorough valuation process. As a result, it is important to do your own research before making any investment decision.