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Right now, Amazon is the 5th largest company in the world with a market cap of 1 trillion dollars and over 1.5 million employees. With 54 billion in cash and equivalents and 67 billion in long term debt, the enterprise value is 1.03 trillion.
Meanwhile, revenue over the last 12 months was 514 billion. Net income was negative 2.7 billion and free cash flow was minus 17 billion. Adjusted Ebitda was 54 billion so we can value the company at 2 times revenue or 19 times adjusted ebitda.
One year of negative earnings is not a dealbreaker for Amazon because the company is known for re-investing all of its profits and free cash flow into new products.
And when you buy Amazon stock you’re not only investing in an online store. An investment in Amazon includes several powerful businesses rolled into one. Stores, third party services, subscriptions, advertising and cloud.
And last year was the first time that revenue generated by Amazon services surpassed the revenue generated from product sales. Such progress can not only be seen in total revenue growth but in gross margins which have improved to 44%, from 35% back in 2016.
The jewel in Amazons crown is AWS which grew operating income another 23% last year to 22.8 billion.
If you assume AWS can grow 15% per year for the next 10 years then trade at a 25 times multiple that would make AWS on its own worth 2.3 trillion which results in an investment return of 8.3% per year. Crucially that’s without taking into account any of Amazon’s other businesses.
Right now, Amazon is the 5th largest company in the world with a market cap of 1 trillion dollars and over 1.5 million employees. With 54 billion in cash and equivalents and 67 billion in long term debt, the enterprise value is 1.03 trillion.
Meanwhile, revenue over the last 12 months was 514 billion. Net income was negative 2.7 billion and free cash flow was minus 17 billion. Adjusted Ebitda was 54 billion so we can value the company at 2 times revenue or 19 times adjusted ebitda.
One year of negative earnings is not a dealbreaker for Amazon because the company is known for re-investing all of its profits and free cash flow into new products.
And when you buy Amazon stock you’re not only investing in an online store. An investment in Amazon includes several powerful businesses rolled into one. Stores, third party services, subscriptions, advertising and cloud.
And last year was the first time that revenue generated by Amazon services surpassed the revenue generated from product sales. Such progress can not only be seen in total revenue growth but in gross margins which have improved to 44%, from 35% back in 2016.
The jewel in Amazons crown is AWS which grew operating income another 23% last year to 22.8 billion.
If you assume AWS can grow 15% per year for the next 10 years then trade at a 25 times multiple that would make AWS on its own worth 2.3 trillion which results in an investment return of 8.3% per year. Crucially that’s without taking into account any of Amazon’s other businesses.
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NewsTranscript
00:00 Should you buy Amazon stock? Right now Amazon is the 5th largest company in the world with
00:05 a market cap of $1 trillion and over 1.5 million employees. With $54 billion in cash and equivalents
00:13 and $67 billion in long term debt the enterprise value is $1.03 trillion. Meanwhile revenue over
00:20 the last 12 months was $514 billion, net income was -$2.7 billion and free cash flow was -$17
00:28 billion. Adjusted EBITDA was $54 billion so we can value the company at 2x revenue or 19x adjusted
00:35 EBITDA. One year of negative net income is not a deal breaker for Amazon because the company is
00:41 known for reinvesting all of its profits and free cash flow into new products. And when you buy
00:46 Amazon stock you're not only investing in an online store, an investment in Amazon includes
00:52 several powerful businesses rolled into one. Stores, third party services, subscriptions,
00:58 advertising, cloud and extras. Last year was the first time that revenue generated by Amazon
01:04 services surpassed the revenue generated from product sales. Such progress can not only be
01:10 seen in total revenue growth but in gross margins which have improved to 44% from 35% back in 2016.
01:19 The jewel in Amazon's crown continues to be AWS which grew operating income another 23%
01:25 last year to $22.8 billion. If you assume AWS can grow 15% per year for the next 10 years
01:33 then trade at a 25x multiple that would make AWS on its own worth $2.3 trillion in 10 years time
01:41 and that results in an investment return of 8.3% per year. So crucially that's without
01:46 taking into account any of Amazon's other powerful businesses. Overall Amazon's share
01:52 price may be down 36% over the last year but looking at a long term chart you can see that
01:58 the last time Amazon traded below 20x EBITDA was back in 2008 and the last time it traded at 2x
02:05 revenue was back in 2015. On top of this Amazon does have levers to pull in which to cut costs
02:13 and return cash to shareholders. So the company has a strong combination of diversity,
02:18 growth and flexibility. For these reasons combined I give the company a bullish rating.
02:24 But these are my personal opinions not financial advice and I do own shares in Amazon stock.
02:29 For more detailed investing ideas visit our website overlookedalpha.com