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Amazon.Com Macro Environment Analysis

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EXECUTIVE SUMMARY was initially incorporated by Jeff Bezos in July 1994, started doing business in 1995 as “The World’s Biggest Bookstore.” Initially company was named as Cadabra Inc. which was later on changed to Amazon Inc. Company was first listed on NASDAQ in May 1997, at $18 per share and its symbol name is AMZN.  Current market capitalisation of company is 890.67 Billion as on 19/07/2018 and current share price $1813 per share.

Amazon started its business as a bookstore but now it sells more than 100 million products all over the world including several media (books, DVDs, CDs, tapes etc.), apparel, baby products, consumer electronics, beauty products, gourmet foods, grocery health and personal care items, industrial and scientific supplies, kitchen items, jewellery, watches, lawn and garden items, musical instruments, sporting goods, tools, automotive items and toys & games.

Except these physical goods company also provide services like providing virtual space to other companies through AWS (Amazon Web Service). Basically, company business model can be divided into 6 major categories which are as follows:

  • Retail Products
  • Physical stores (Whole Foods and Amazon Go)
  • Retail Third Party Seller Services
  • Retail Subscription services (Amazon Prime)
  • AWS
  • Others (includes certain advertising services)

Retail product business is the traditional business by Amazon and they are the market leader in that but recently company has shown rapid growth in the other business segments as well like Physical stores, Third Party seller service and especially in web service space.

Amazon share has outperformed its competitors and index as well on 3 Year basis. Clear reason behind this growth in last few years is value that they have provided to their customers and investors by providing best services through all of their business segments which are driven by some or other value driver. Key value drivers for company at this stage are:

1) Marketplace-Third party seller business

This business segment of Amazon has grown at an average Y-O-Y rate of 30% in last 5 years and in future it is expected to grow more in future. In 2017 Amazon generated USD 31.881 Billion in revenue from third party seller service only which was second highest after Retail. In 2017, this segment sold almost 50% of the total units sold by Amazon globally.                                                                                         

2) Amazon Web Services

Amazon cloud service is really getting popular globally and it is has driven its business at an average Y-O-Y growth rate of 50% in last 5 years. AWS is growing at a very healthy rate and has also accelerated its pace of innovation – especially in areas of machine learning and artificial intelligence, Internet of Things and serverless computing.  Recently they have announced more than 1000 new services and features. Importance of AWS business can be understood with the help of this graph provided by Statista.

3) Prime

Amazon Prime is getting so popular all over the world and it is giving competition to Netflix and other players in this space. Last 5-year Y-O-Y average growth rate is around 40% and prime members are increasing globally especially in India.

4) Kindle ecosystem and Alexa

Owing to the success of its line of kindle tablets and assistance service through Alexa, Amazon is generating Billions in revenue and due to increasing prime members these products are even getting more popular.

From the current financial situation and investments done for future, Amazon looks good to grow at a constant growth rate of 20%-21% in near future. Increasing EBITDA and FCFF also claims bright future for the company’s investors and management as well.

Based on current share price of $1813 per share (22 July 2018) and DCF valuation of USD $1629 to USD $3357, Amazon is currently undervalued with a potential upside of 52% and a downside of 26%. According to this research analysis, the recommendation for NASDAQ: AMZN is to BUY.


Market Information

Exchange: NASDAQ

Ticker: AMZN        

Sector: Consumer Cyclical

Industry: Speciality Retail

Share Price: $1813.70

52 Week High: $1858.88

52 Week low: $ 1812.97

Amazon Inc.

Headquarters: Seattle, Washington, U.S.

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