Amazon.com, Inc. (AMZN)
Discount cash flow analysis
5% margin of safety What's this?
Sensitivity matrix
|
-1% |
Discount Rate % 0% |
1% |
||
|---|---|---|---|---|
| -1% | $59.60 | $58.52 | $57.47 | |
| Terminal Growth% | 0 | $60.11 | $59.00 | $57.93 |
| +1% | $60.62 | $59.50 | $58.41 |
How does a change in discount rate or terminal growth affect valuation?
This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate
Valuations and comments
- Valuecruncher created a new valuation of $71.31 (overvalued by 10.1%) - 10 hours ago
- GordonGekko created a new valuation of $70.97 (overvalued by 9.0%) - 1 month ago
- SethWellbourne created a new valuation of $53.54 (overvalued by 32.4%) - 2 months ago
- SethWellbourne created a new valuation of $65.61 (overvalued by 8.16%) - 3 months ago
- GordonGekko created a new valuation of $48.71 (overvalued by 5.58%) - 5 months ago
- TheCrunchBlog created a new valuation of $62.65 (overvalued by 10.45%) - 9 months ago
- GordonGekko created a new valuation of $60.34 (overvalued by 25.51%) - 9 months ago
- KiwiEMH created a new valuation of $81.16 (undervalued by 0.48%) - 10 months ago
- GordonGekko created a new valuation of $83.39 (undervalued by 0.34%) - 10 months ago
- KiwiEMH created a new valuation of $79.54 (overvalued by 1.2%) - 1 year ago
- KiwiEMH created a new valuation of $78.46 (overvalued by 0.33%) - 1 year ago
- TheCrunchBlog created a new valuation of $59.00 (overvalued by 19.54%) - 1 year ago
- virtualmark created a new valuation of $44.07 (overvalued by 40.87%) - 1 year ago
- sethc created a new valuation of $58.29 (overvalued by 24.6%) - 1 year ago
- GordonGekko created a new valuation of $76.27 (overvalued by 4.88%) - 1 year ago
- Sam created a new valuation of $58.11 (overvalued by 27.53%) - 1 year ago
Comments
The boring details
| All amounts in millions | Figures |
| Enterprise Value: | 31,300 |
| Net Debt (Long-term borrowings less cash): | -1,830 |
| Equity Value: | 30,628 |
| Number of Shares Outstanding: | 417,000,000 |
| Calculated value per share: | $59.00 |
Enterprise Value is the present value of the post-tax cash flows for a business into the future.
Where:
- C1, C2, C3 - the cash flow in period 1, 2, 3, ...
- r - the discount rate
To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.
Where:
- Cn - the cash flow in the final forecast period.
- LTG - the long-term growth rate
- r - the discount rate
- g - the terminal growth rate
The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.
Where:
- rt - the risk free rate
- t - the tax rate
- B - the beta of the company
- MRP - the Market Risk Premium
Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.
This valuation is part of this blog post:
http://blog.valuecruncher.com/2008/07/is-amazoncom-really-worth-over-70-a-share/
Our assumptions of revenues for the next three years are US$19.5 billion in 2008 increasing to US$29.5 billion in 2010. We have projected EBITDA margins increasing from 7% in 2008 to 8% in 2010.
We have used a terminal growth rate of 5%. Our view is that AMZN’s growth beyond 2010 will slow – but there is a distance to go yet. Our numbers project 2009 to 2010 revenue growth of 23%. This assumption has a significant impact on the valuation. If you believe AMZN has better future prospects – this will positively impact the valuation.
We have used a WACC (discount rate) of 10.5%. The WACC (discount rate) has a material impact on a discounted cash flow valuation (as does the terminal growth rate).
We used a terminal capital expenditure number of US$350 million. In our opinion capital expenditure should stabilize around this number.