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Valuation Metrics for Evaluating Amazon.com

This class focuses on understanding different valuation metrics for evaluating Amazon.com. The discussion will cover traditional and new models, parameters for measuring income and multiples, and the importance of more than just a pretty website. Homework includes preparing a case study and a crossfire debate.

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Valuation Metrics for Evaluating Amazon.com

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  1. TODAY’S CLASS 5:00-6:30 Crossfire: Valuation 6:30-6:45 Break 6:45-7:40 Case discussion: Amazon.com

  2. NEXT CLASS GUEST SPEAKER Steve Harris excite@Home Topic: “Using Customer Data to Develop Evaluation Metrics”

  3. Homework due next session • Prepare Case: Chapter 7 • Prepare Crossfire: : Metrics for evaluating e-Businesses

  4. Amazon.com Snapshot - Bezos started Amazon in 1995 with a customer focus - Metrics (1999) Revenues $1.6 B Net loss $720 M Employees 7,600 Markets: Books (54%), music, DVDs, videos, toys, electronics, software, video games, home improvements, and lawn and patio

  5. Disagreement Over Goals Amazon Management Shareholders - Growth in new industries - Profitability - Partnership/affiliations - Positive cash flow - Market share - Higher stock price How do you merge these goals and develop a strategy to meet the vision of becoming Earth’s Biggest Store?

  6. Traditional Models for Valuing Common Stock Choices for parameters: Which measure of income? Whose perspective? Which discount rate? Which growth rate?

  7. Traditional Models for Valuing Common Stock Choices for parameters: Which measure for multiple? Which comparison? Raw or adjusted multiple? What time period for comparison?

  8. New Models for Valuing Internet Stocks Choices for parameters: Which multiple measures? Which comparison? Raw or adjusted multiple? What time period for comparison?

  9. A Pretty Web Site is not Enough

  10. Top Ten E-Business CSFs

  11. “The Amazon.com platform is comprised of brand, customers, technology, distribution capability, deep EC expertise, and a great team with a passion for innovation and serving customers well… We believe that we have reached a ‘tipping point,’ where this platform allow us to launch new EC businesses faster, with a higher quality of customer experience, a lower incremental cost, a higher chance of success, and a clearer path to scale and profitability than perhaps any other company.” Jeff Bezos 1999 Annual Report

  12. “The Amazon.com platform is comprised of brand, customers, technology, distribution capability, deep e-commerce expertise, and a great team with a passion for innovation and serving customers well.” Jeff Bezos 1999 Annual Report

  13. “We believe that we have reached a ‘tipping point,’ where this platform allow us to launch new e-commerce businesses faster, with a higher quality of customer experience, a lower incremental cost, a higher chance of success, and a clearer path to scale and profitability than perhaps any other company.” Jeff Bezos 1999 Annual Report

  14. The key to valuing companies is understanding the market’s consensus forecast for their key value drivers, how their cost of capital changes over time, and the shape that their industry competition will take a decade or more from now.

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