Amazon: Our Calculation Of Intrinsic Value
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As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the biggest names in tech and e-commerce, Amazon.com, Inc. (AMZN).
Profile
Amazon.com, Inc. is a global leader in e-commerce, cloud computing, and digital streaming. It operates through three core segments: North America (e-commerce retail), International (non-U.S. retail), and Amazon Web Services (AWS), its cloud infrastructure platform. AWS is Amazon’s most profitable segment, accounting for the bulk of its operating income, while its retail business is known for its vast logistics network and customer obsession. With investments in AI, advertising, and logistics automation, Amazon remains one of the most diversified tech giants in the world.
DCF Analysis
Inputs
- Discount Rate: 9%
- Terminal Growth Rate: 4%
- WACC: 9%
Forecasted Free Cash Flows (FCFs) in billions
| Year | FCF ($B) | Present Value ($B) |
|---|---|---|
| 2025 | 40.00 | 36.70 |
| 2026 | 45.00 | 37.89 |
| 2027 | 50.00 | 38.55 |
| 2028 | 55.00 | 38.80 |
| 2029 | 60.00 | 38.68 |
Total Present Value of FCFs = 190.62 billion
Terminal Value Calculation
Terminal Value = (FCF_2029 × (1 + g)) / (r – g)
= (60.00 × 1.04) / (0.09 – 0.04)
= 62.40 / 0.05
= 1,248.00 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5
= 1,248.00 / (1.5386)
= 811.03 billion
Enterprise Value Calculation
Enterprise Value = PV of FCFs + PV of Terminal Value
= 190.62 + 811.03
= 1,001.65 billion
Net Debt Calculation
Net Debt = Total Debt – Total Cash
= 130.90 – 101.20
= 29.70 billion
Equity Value Calculation
Equity Value = Enterprise Value – Net Debt
= 1,001.65 – 29.70
= 971.95 billion
Per-Share DCF Value
Per-Share DCF Value = Equity Value / Shares Outstanding
= 971.95 / 10.76
= $90.35
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $90.35 | $191.10 | -52.77% |
Based on the DCF valuation, Amazon appears significantly overvalued. The estimated intrinsic value of $90.35 per share is well below the current market price of $191.10, resulting in a -52.77% Margin of Safety.
While Amazon continues to be a dominant force in cloud, retail, and AI innovation, this valuation indicates that the market may be pricing in much stronger growth or efficiency improvements than assumed in our base-case cash flow projections.
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