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 is 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 66.26%.
Inputs
- Discount Rate: 9%
- Terminal Growth Rate: 2%
- WACC: 9%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2024 | 18.81 | 17.26 |
| 2025 | 22.59 | 19.01 |
| 2026 | 27.14 | 20.96 |
| 2027 | 32.61 | 23.10 |
| 2028 | 39.18 | 25.46 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 570.91 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 371.05 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 105.79 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 476.84 billion
Net Debt
Net Debt = Total Debt – Total Cash = -15.08 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 491.92 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $47.39
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $47.39 | $176.59 | -272.62% |
Based on the DCF valuation, the stock is overvalued. The DCF value of $47.39 per share is lower than the current market price of $176.59. The Margin of Safety is -272.62%.
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:
One Comment on “Amazon.com Inc (AMZN) DCF Valuation: Is The Stock Undervalued?”
Flawed analysis, imo. Should use normalized cap ex or use a higher terminal growth rate – won’t be both (elevated cap ex and 2% growth).