Amazon Inc. (AMZN) Valuation 15th Feb 2023
Key Concern :
Revenue Growth slowing down. CAGR (2021-2023) -5.92%
Sales, General Admin Expenses as % Revenue has Increased : 26.93% (2022)
Operating Expenses as % Revenue Increased : 41.42% (2022)
Model assumes AMZN will be able to grow CAGR by double digit percentage and cut Operating and SGA expenses as percentage of sales by 10% and more over next ten-year period.
Revenue Growth Rate over 10 Year Period ( 2022-2032)
Three Scenarios
CAGR 12.34%
CAGR 8.93%
CAGR 4.00%
Operating Expenses as % Revenue Decreasing by 2032 to 36.57%
Sales, General Admin Expenses as % Revenue Decreasing by 2032 : 15%
Cost of Capital Calculation Inputs
10YR Bond Yield Risk Free Rate : 3.77%
Market Risk Premium : 10.35%
Size Risk Premium Added : 2.00%
Terminal Rate into Perpetuity 3.00%
Base Year (2022)
Revenue : 8.61%
Pre-Tax Operating Margin 9.85% (incl. R&D and Operating Lease Capitalisation), Cost of Capital 18.20%, Effective Tax Rate 46%
Sales, General Admin Expense/Revenue : 26.93%
Year into perpetuity (2032) and beyond
Pre-tax Operating Margin 10%, Cost of Capital 11.26%, Effective Tax Rate 26%, Return on Capital used : 7.50% (Industry Average 22%)
Sales, General Admin Expense/Revenue : 15%
Fair Value Calculation
CAGR 12.34% – Fair Value $88.47
CAGR 8.93% – Fair Value $77.14
CAGR 4.00% – Fair Value $61.83
AMZN is a special kind of high growth company, which will be difficult to justify solely on the basis of current intrinsic value. One will have to believe in AMZN future growth story, which is stll evolving. We would still buy AMZN stock based on the company’s past history and proven track record.
For the first quarter 2023, our buying range for AMZN would remain at the lower range between $60 -$70 by considering the prevailing macro condition. Of course, if there is recession, AMZN could fall well below $50 mark.