4
Amazon.com, Inc. (AMZN)
- Equity
- US
- Consumer Cyclical
RISK
RETURN
Key risk factors
Strong trading liquidity
Low price volatility
Resilient to price shocks
Key return factors
Greatly overvalued vs peers
Very low or no dividends
Somewhat favourable analyst view
Company profileAmazon.com, Inc. engages in the retail sale of consumer products and subscriptions through online and physical stores in North America and internationally. The company operates through three segments: North America, International, and Amazon Web Services (AWS). Its products offered through its stores include merchandise and content purchased for resale; and products offered by third-party sellers The company also manufactures and sells electronic devices, including Kindle, Fire tablets, Fire TVs, Rings, Blink, eero, and Echo; and develops and produces media content. In addition, it offers programs that enable sellers to sell their products in its stores; and programs that allow authors, musicians, filmmakers, Twitch streamers, skill and app developers, and others to publish and sell content. Further, the company provides compute, storage, database, analytics, machine learning, and other services, as well as fulfillment, advertising, and digital content subscriptions. Additionally, it offers Amazon Prime, a membership program. The company serves consumers, sellers, developers, enterprises, content creators, and advertisers. Amazon.com, Inc. was incorporated in 1994 and is headquartered in Seattle, Washington.
Valuation: Greatly overvalued
Multiple
TTM
NTM
P/E
50.50
39.30
PEG
2.50
-
P/B
8.80
7.20
P/S
3.20
3.00
P/FCF
41.70
71.40
EV/EBITDA
20.60
24.30
Considering past and projected metrics, the stock is distinctly 'expensive' compared to its peers. Specifically, the stock is expensive' on P/E, overvalued on EV/EBITDA, and overpriced on P/FCF.
Performance: Mixed
The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 22ppts over past six months and grown 1ppts faster in the past month. At the same time, the stock's performance relative to its the peers from the same country and sector is different. The stock outperformed these peers by 19ppts over the past six months and grew 2ppts faster in the past month. With respect to the stock's valuation against its peers, its overall price performance is neutral.
Analyst view: Somewhat favourable
The average target price is 242 and suggests 32% upside potential. Usually, this means a BUY recommendation among investment firms, or a recommendation to increase one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 500.0. This translates into 173% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 180.0. This is equivalent to 2% downside potential in the worst case.
Profitability: Good
RoE
Amazon.com, Inc. reported a return on equity (RoE) of 18.0% in the last 12 months, up from -1.9% in FY22. The market consensus projects an RoE of 25.6% in FY24, again ahead of its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 7.1% in the last 12 months, an increase from -0.6% in FY22. The market analysts predict that RoA will be 9.8% in FY24, again stronger than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) grew to 10.2%, below the peers. The consensus estimate for FY24 for RoCE is 17.6%, however, this time ahead of the peers.
Net margin
EBITDA margin
Historically, AMZN has reported modest net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 6.4%, a growth from -0.5% in FY22. The company has reported modest EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 16.4% in the last 12 months, up from 10.7% in FY22.
RoIC / WACC = 1.2(average value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.2 in the past several years. This ratio implies a average shareholder value creation. Growth: Poor
Revenue
EBITDA
EPS
Free cash flow
AMZN reported revenue of USD 590 740mn in the last 12 months, up 3% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 23% from FY23 to USD 3.65. Market expects EPS to reach USD 4.54 in FY24.Revenue growth has been moderate in the past several years (positive-to-neutral), while EBITDA growth has been steady. Net income has fallen rapidly in recent years (strongly negative). FCF has fallen rapidly, far faster than EBITDA. We emphasize the highly volatile dynamics of EBITDA, EPS and FCF. On the positive side, revenue dynamics is very stable.
Dividends: Very low or none
The company does not pay dividends at all, or it pays them sporadically.
Default risk: Limited
The risk of default is minimal. We note solid return on capital, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors and we point to slow historical revenue growth, and poor working capital management.
Volatility: Low
In normal market circumstances, AMZN is not overly volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will remain relatively stable. The stock's losses on its worst days (less than 1-5% of the time) will range from low to minimal. We would also like to highlight the minimal intraday volatility of the instrument.
Stress-test: Resilient
In highly turbulent market conditions, AMZN is not overly volatile. In other words, the stock will fall less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be low.
Selling difficulty: Very low
AMZN boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.