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Valuation Winter 2010

Amazon.com, Inc. Valuation Winter 2010. By Michael Swiericzuk. Amazon’s offerings 20,000ft. Offers web-based services to: Consumers Product Sellers Web Business Developers + “Manufactures” the Kindle. Revenue. Sources: Books and Music (media) Product Sales (electronics etc)

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Valuation Winter 2010

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  1. Amazon.com, Inc. ValuationWinter 2010 By Michael Swiericzuk

  2. Amazon’s offerings 20,000ft Offers web-based services to: Consumers Product Sellers Web Business Developers + “Manufactures” the Kindle Swiericzuk - Amazon.com Valuation March 2010

  3. Revenue • Sources: • Books and Music (media) • Product Sales (electronics etc) • Seller Branded Websites • Co-branded credit card agreements • Marketing and promotional services • Online advertising Swiericzuk - Amazon.com Valuation March 2010

  4. Organizational Structure • Two operational segments: • North America • International • Three sales segments: • Media • Electronics and General Merchandise • Other Swiericzuk - Amazon.com Valuation March 2010

  5. Growth • Sales year over year 2009 • North America: 20% • International: 37% • Consolidated: 29%(ex. Exchange Rates) • Acquisitions • November 2009 – Zappos 2009 • February 2010 – Touchco Swiericzuk - Amazon.com Valuation March 2010

  6. 2007 Revenue: $14.8 B 2008 Revenue: $19.1 B 2009 Revenue: $24.5B International N. America N. America N. America International International Swiericzuk - Amazon.com Valuation March 2010

  7. Sales Proportions 2007-2009 Swiericzuk - Amazon.com Valuation March 2010

  8. Revenue and Net Income Swiericzuk - Amazon.com Valuation March 2010

  9. Why is Amazon so successful? • Management • - stable and experienced • Systems Focused • - constant Improvement • Customer Focused • - shipping and easy use • - security • Product Prices • - not the cheapest Swiericzuk - Amazon.com Valuation March 2010

  10. Amazon’s Management • Performance • Consistent Growth • International Expansion • Cost control • 2008-2010 • Growth – really strong growth • Beat the “Street” • Paid down Debt Swiericzuk - Amazon.com Valuation March 2010

  11. Amazon.com Strategy • Consistent Growth • Stable Growth • Cost Control • International Expansion • Constant Improvement • Lead in ecommerce • Customer satisfaction Swiericzuk - Amazon.com Valuation March 2010

  12. Where’s the Debt? What does this do to WACC? *Market Cap 03/03/2010 according to CNBC.com **Market Value of Debt Swiericzuk - Amazon.com Valuation March 2010

  13. Amazon’s Risks • Competition (BKS, EBAY, WMT, AAPL) • Business Model • Publishers and Record Companies • Growth • Invest away from core competencies Swiericzuk - Amazon.com Valuation March 2010 2000-2001

  14. Amazon today Price: $126.00 (03/03/2010) 52 week range: $59.82-$145.91 Beta: 1.12-1.29* PE: 61.5 PEG: 1.46 Market Cap: $55.8 Billion Shares: 444.55 ROA (5 yr): 8.20 ROE (5yr): 36.06 *Taken from CNBC.com, Morningstar and Reuters .com 03/03/2010* Amazon – 12 month chart Swiericzuk - Amazon.com Valuation March 2010

  15. What is Amazon worth? • Valuation Model and Considerations: • FCFF 3 stage model (high growth → stable growth → perpetuity) • Growth rates • Cap Ex and Depreciation • Tax Rate • Pre-tax operating margin • Amazon’s Debt (borrowing? cost?) • Long Term Bond Rate – 4.4% • Risk Premium – 5.17% Swiericzuk - Amazon.com Valuation March 2010

  16. Model Inputs Swiericzuk - Amazon.com Valuation March 2010

  17. Valuation for Amazon.com, Inc. $158.67 is 36% above today’s value – BUY! Swiericzuk - Amazon.com Valuation March 2010

  18. FCFF Model Sensitivity Swiericzuk - Amazon.com Valuation March 2010

  19. Growth rates used in the model Swiericzuk - Amazon.com Valuation March 2010

  20. ? Swiericzuk - Amazon.com Valuation March 2010

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