Stock Analysis on Net
Stock Analysis on Net
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Amazon.com Inc. (NASDAQ:AMZN)

Present Value of Free Cash Flow to Equity (FCFE)

Intermediate level

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’s asset base.


Intrinsic Stock Value (Valuation Summary)

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

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 13.90%
01 FCFE0 29,969
1 FCFE1 35,668 = 29,969 × (1 + 19.02%) 31,315
2 FCFE2 41,806 = 35,668 × (1 + 17.21%) 32,226
3 FCFE3 48,246 = 41,806 × (1 + 15.40%) 32,651
4 FCFE4 54,807 = 48,246 × (1 + 13.60%) 32,565
5 FCFE5 61,271 = 54,807 × (1 + 11.79%) 31,963
5 Terminal value (TV5) 3,252,822 = 61,271 × (1 + 11.79%) ÷ (13.90%11.79%) 1,696,903
Intrinsic value of Amazon.com Inc.’s common stock 1,857,624
 
Intrinsic value of Amazon.com Inc.’s common stock (per share) $3,688.95
Current share price $3,159.53

Based on: 10-K (filing date: 2021-02-03).

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)

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Assumptions
Rate of return on LT Treasury Composite1 RF 2.08%
Expected rate of return on market portfolio2 E(RM) 12.37%
Systematic risk of Amazon.com Inc.’s common stock βAMZN 1.15
 
Required rate of return on Amazon.com Inc.’s common stock3 rAMZN 13.90%

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]
= 2.08% + 1.15 [12.37%2.08%]
= 13.90%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Amazon.com Inc., PRAT model

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Average Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Selected Financial Data (US$ in millions)
Net income 21,331  11,588  10,073  3,033  2,371 
Net sales 386,064  280,522  232,887  177,866  135,987 
Total assets 321,195  225,248  162,648  131,310  83,402 
Stockholders’ equity 93,404  62,060  43,549  27,709  19,285 
Financial Ratios
Retention rate1 1.00 1.00 1.00 1.00 1.00
Profit margin2 5.53% 4.13% 4.33% 1.71% 1.74%
Asset turnover3 1.20 1.25 1.43 1.35 1.63
Financial leverage4 3.44 3.63 3.73 4.74 4.32
Averages
Retention rate 1.00
Profit margin 3.49%
Asset turnover 1.37
Financial leverage 3.97
 
FCFE growth rate (g)5 19.02%

Based on: 10-K (filing date: 2021-02-03), 10-K (filing date: 2020-01-31), 10-K (filing date: 2019-02-01), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-10).

2020 Calculations

1 Company does not pay dividends

2 Profit margin = 100 × Net income ÷ Net sales
= 100 × 21,331 ÷ 386,064
= 5.53%

3 Asset turnover = Net sales ÷ Total assets
= 386,064 ÷ 321,195
= 1.20

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 321,195 ÷ 93,404
= 3.44

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 1.00 × 3.49% × 1.37 × 3.97
= 19.02%


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (1,591,028 × 13.90%29,969) ÷ (1,591,028 + 29,969)
= 11.79%

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


FCFE growth rate (g) forecast

Amazon.com Inc., H-model

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Year Value gt
1 g1 19.02%
2 g2 17.21%
3 g3 15.40%
4 g4 13.60%
5 and thereafter g5 11.79%

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)
= 19.02% + (11.79%19.02%) × (2 – 1) ÷ (5 – 1)
= 17.21%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 19.02% + (11.79%19.02%) × (3 – 1) ÷ (5 – 1)
= 15.40%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 19.02% + (11.79%19.02%) × (4 – 1) ÷ (5 – 1)
= 13.60%