Stock Analysis on Net

Amazon.com Inc. (NASDAQ:AMZN)

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.


Intrinsic Stock Value (Valuation Summary)

Amazon.com Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 14.89%
01 FCFE0 21,205
1 FCFE1 24,550 = 21,205 × (1 + 15.77%) 21,368
2 FCFE2 28,289 = 24,550 × (1 + 15.23%) 21,430
3 FCFE3 32,444 = 28,289 × (1 + 14.69%) 21,392
4 FCFE4 37,033 = 32,444 × (1 + 14.15%) 21,253
5 FCFE5 42,070 = 37,033 × (1 + 13.60%) 21,015
5 Terminal value (TV5) 3,706,016 = 42,070 × (1 + 13.60%) ÷ (14.89%13.60%) 1,851,196
Intrinsic value of Amazon.com Inc. common stock 1,957,654
 
Intrinsic value of Amazon.com Inc. common stock (per share) $188.46
Current share price $179.83

Based on: 10-K (reporting date: 2023-12-31).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.43%
Expected rate of return on market portfolio2 E(RM) 13.60%
Systematic risk of Amazon.com Inc. common stock βAMZN 1.14
 
Required rate of return on Amazon.com Inc. common stock3 rAMZN 14.89%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rAMZN = RF + βAMZN [E(RM) – RF]
= 4.43% + 1.14 [13.60%4.43%]
= 14.89%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Amazon.com Inc., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Net income (loss) 30,425 (2,722) 33,364 21,331 11,588
Net sales 574,785 513,983 469,822 386,064 280,522
Total assets 527,854 462,675 420,549 321,195 225,248
Stockholders’ equity 201,875 146,043 138,245 93,404 62,060
Financial Ratios
Retention rate1 1.00 1.00 1.00 1.00 1.00
Profit margin2 5.29% -0.53% 7.10% 5.53% 4.13%
Asset turnover3 1.09 1.11 1.12 1.20 1.25
Financial leverage4 2.61 3.17 3.04 3.44 3.63
Averages
Retention rate 1.00
Profit margin 4.30%
Asset turnover 1.15
Financial leverage 3.18
 
FCFE growth rate (g)5 15.77%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Company does not pay dividends

2 Profit margin = 100 × Net income (loss) ÷ Net sales
= 100 × 30,425 ÷ 574,785
= 5.29%

3 Asset turnover = Net sales ÷ Total assets
= 574,785 ÷ 527,854
= 1.09

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 527,854 ÷ 201,875
= 2.61

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 1.00 × 4.30% × 1.15 × 3.18
= 15.77%


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (1,867,963 × 14.89%21,205) ÷ (1,867,963 + 21,205)
= 13.60%

where:
Equity market value0 = current market value of Amazon.com Inc. common stock (US$ in millions)
FCFE0 = the last year Amazon.com Inc. free cash flow to equity (US$ in millions)
r = required rate of return on Amazon.com Inc. common stock


FCFE growth rate (g) forecast

Amazon.com Inc., H-model

Microsoft Excel
Year Value gt
1 g1 15.77%
2 g2 15.23%
3 g3 14.69%
4 g4 14.15%
5 and thereafter g5 13.60%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 15.77% + (13.60%15.77%) × (2 – 1) ÷ (5 – 1)
= 15.23%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 15.77% + (13.60%15.77%) × (3 – 1) ÷ (5 – 1)
= 14.69%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 15.77% + (13.60%15.77%) × (4 – 1) ÷ (5 – 1)
= 14.15%