Amazon.com, Inc. (AMZN)

[Pages:3], Inc. (AMZN)

Updated April 26th, 2019 by Eli Inkrot

Key Metrics

Current Price:

$1,917

Fair Value Price: $1,500

% Fair Value:

128%

Dividend Yield:

0.0%

Dividend Risk Score: N/A

5 Year CAGR Estimate: 5 Year Growth Estimate: 5 Year Valuation Multiple Estimate: 5 Year Price Target Retirement Suitability Score:

7.2% 12.0% -4.8% $2,644 N/A

Volatility Percentile: 61.2%

Momentum Percentile: 85.0%

Growth Percentile:

95.8%

Valuation Percentile: 17.0%

Total Return Percentile: 38.9%

Overview & Current Events

Founded in 1995 by Jeff Bezos, began as an online bookstore. Today the company has become one the world's largest online retailers. In 2018 the company generated $232.9 billion in revenue, with approximately 61% of that total attributable to product sales and remaining 39% to services. In addition, North America accounts for roughly 61% of sales, International markets make up 28% of sales and Amazon Web Services (AWS) equaled about 11% of sales last year. Headquartered in Seattle, WA the $962 billion market cap company employs nearly 631,000 people.

On April 25th, 2019 Amazon released Q1 2019 results for the period ending March 31st, 2019. For the quarter Amazon generated $59.7 billion in revenue, led by an impressive 31% increase in net service sales. The $59.7 billion figure represented a 17% increase overall compared to the $51.0 billion generated in Q1 2018 and was at the high end of prior guidance. Operating income totaled $4.4 billion in the quarter, up from $1.9 billion previously and well above Amazon's guidance. Net income increased to $3.6 billion ($7.09 per share) compared with $1.6 billion ($3.27) in Q1 2018.

Amazon also provided guidance for the second quarter of 2019. The company expects net sales of between $59.5 billion and $63.5 billion, a 13% to 20% increase, along with Operating income of $2.6 billion to $3.6 billion compared with $3.0 billion in the year ago period.

Year CFPS DPS Shares

2009 $2.88

--444

2010 $3.81

--451

2011 $3.77

--455

Growth on a Per-Share Basis

2012 2013 2014 2015 2016

$5.04 $7.68 $9.70 $14.60 $21.99

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455 459 464 471 477

2017 $28.35

--484

2018 $51.76

--491

2019 $60.00

--507

2024 $105.75

--510

We have elected to show Cash Flow-per-share data in the above table instead of earnings-per-share data as has been customary. While Amazon has begun to show significant improvement on the earnings-per-share front, growing the total from $6.15 in 2017 to $20.14 in 2018, this metric has been finicky as the company continues to reinvest heavily. A net income loss was actually recorded in 2014, despite the business growing tremendously. While the cash flow metric is not perfect, it does give you a better sense of the company's underlying earnings power.

Amazon has been the disruptive force in the retail industry. There's an old saying: "You can have it fast, good or cheap. Pick two." It seems Amazon has solved this riddle by offering all three ? competitive pricing, quick shipping options and very good products / customer service. The company has strong retention tools in the way of Alexa-enabled devices and the company's Prime membership. Moreover, the company enjoys a tremendous network effect ? with an estimated 420 million global active users and over 100 million Prime members ? that attracts merchants to the site. Further, the sizable international presence and higher margin AWS business offer increased growth opportunities as well.

While growing at the same rate becomes more and more difficult as the company continues to increase in size ? sales now tally about half that of Wal-Mart, while the market cap is now 3 times as much ? we do believe there is still a significant growth runway ahead. In turn, our expectation is for low double-digit grow, 12% annually, over the intermediate-term.

Disclosure: This analyst has no position in the security discussed in this research report, and no plans to initiate one in the next 72 hours.

, Inc. (AMZN)

Updated April 26th, 2019 by Eli Inkrot

Valuation Analysis

Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Now 2024

Avg. P/CF 46.7 47.2 45.9 49.8 51.9 32.0 46.3 34.1 41.3 29.0 32.0 25.0

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Over the past decade shares of Amazon have traded hands with an average Price-to-Cash Flow ratio of about 40. However, this was also during a time when this metric was growing by an average of nearly 38% per annum. Given the size of the business, the improvements already made and the lowered growth prospects moving forward, we have used 25 times Cash Flow as a starting baseline. Keep in mind that this is contingent on both growth continuing along with the idea of cash flows eventually converging towards earnings. At the current quotation, this estimate would imply the potential for a meaningful valuation headwind.

Safety, Quality, Competitive Advantage, & Recession Resiliency

Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2024

Payout ---

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Amazon has a trifecta of competitive advantages in the way of a low price offering coupled with exceptional logistical capabilities, execution and customer experience. The "Amazon effect" weighs heavy for competitors and it has become a real challenge for a variety of industries. As Jeff Bezos says, "your margin is my opportunity." Moreover, Amazon has thus far been able to procure better margins than traditional retailers via its online and service operations. In turn, this allows the company to explore new areas and diversify its business lines.

Due to an excellent operating history, Amazon's balance sheet is good shape. As of the most recent report Amazon held $23.1 billion in cash, $69.4 billion in current assets and $178.1 billion in total assets against $63.7 billion in current liabilities and $129.7 billion in total liabilities, including $23.3 billion in long-term debt. The growth story could be dampened by the next recession, however with the company not paying a dividend, Amazon appears to be in a solid position to weather the next storm.

Final Thoughts & Recommendation

Shares are up 17% since our last update. Amazon has put together an exceptional operating history, which in turn has led to tremendous gains for past investors. However, total return potential of 7.2% appears marginal at this point, stemming from above average 12% expected growth rate offset by a 4.8% valuation headwind. Granted, the story is still being written and there is quite a bit of potential left as the bottom line begins to formulate in a meaningful way. Shares are not appropriate for income investors, but we rate shares as a hold for those who believe Amazon will continue growing rapidly over the next several years.

Total Return Breakdown by Year

150% 100%

50% 0%

-50%

59.0% 2013

Amazon (AMZN): Total Return Decomposition

117.8%

10.9%

56.0%

28.4% 7.2%

-22.2% 2014

2015 Total Return

2016

2017

2018 Sure Analysis Estimates

Dividend Return Price Change

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Disclosure: This analyst has no position in the security discussed in this research report, and no plans to initiate one in the next 72 hours.

, Inc. (AMZN)

Year Revenue ($B) Gross Profit Gross Margin

SG&A Exp. D&A Exp. Operating Profit Op. Margin Net Profit Net Margin Free Cash Flow Income Tax

2009 24.51 5531 22.6% 3060 378 1231 5.0% 902 3.7% 2920 253

Updated April 26th, 2019 by Eli Inkrot

Income Statement Metrics

2010 2011 2012 2013 2014 34.20 48.08 61.09 74.45 88.99 4745 6213 8703 11686 15470 13.9% 12.9% 14.2% 15.7% 17.4% 1499 2288 3304 4262 5884 568 1083 2159 3253 4746 1406 862 676 745 178 4.1% 1.8% 1.1% 1.0% 0.2% 1152 631 -39 274 -241 3.4% 1.3% -0.1% 0.4% -0.3% 2516 2092 395 2031 1949 352 291 428 161 167

2015 107.01 21945 20.5% 7001 6281 2233 2.1%

596 0.6% 6652 950

2016 135.99 30103 22.1% 9665 8116 4186 3.1% 2371 1.7% 9399 1425

2017 177.87 40683 22.9% 13743 11478 4106 2.3% 3033 1.7% 6410

769

2018 232.89 59704 25.6% 18150 15341 12421 5.3% 10073 4.3% 17296 1197

Year Total Assets ($B) Cash & Equivalents Acc. Receivable

Inventories Goodwill & Int. Total Liab. ($B) Accounts Payable Long-Term Debt

Total Equity D/E Ratio

2009 13.81 3444 988 2171 1801 8.56 5605 109 5257 0.02

2010 18.80 3777 1587 3202 1912 11.93 8051 184 6864 0.03

Balance Sheet Metrics

2011 2012 2013 2014 25.28 32.56 40.16 54.51 5269 8084 8658 14557 2571 3817 4767 5612 4992 6031 7411 8299 2602 3277 3300 4083 17.52 24.36 30.41 43.76 11145 13318 15133 16459 255 3084 3191 8265 7757 8192 9746 10741 0.03 0.38 0.33 0.77

2015 64.75 15890 5654 10243 4751 51.36 20397 8227 13384 0.61

2016 83.40 19334 8339 11461 4638 64.12 25309 7694 19285 0.40

2017 131.31 20522 13164 16047 16721 103.60 34616 24743 27709 0.89

2018 162.65 31750 16677 17174 18658 119.10 38192 23495 43549 0.54

Profitability & Per Share Metrics

Year

2009 2010 2011 2012 2013 2014 2015

Return on Assets 8.2% 7.1% 2.9% -0.1% 0.8% -0.5% 1.0%

Return on Equity 22.8% 19.0% 8.6% -0.5% 3.1% -2.4% 4.9%

ROIC

21.4% 18.6% 8.4% -0.4% 2.3% -1.5% 2.9%

Shares Out.

444 451 455 455 459 464 471

Revenue/Share 55.45 75.01 104.29 134.86 160.11 192.61 224.33

FCF/Share

6.61 5.52 4.54 0.87 4.37 4.22 13.95

Note: All figures in millions of U.S. Dollars unless per share or indicated otherwise.

2016 3.2% 14.5% 9.8% 477 280.96 19.42

2017 2.8% 12.9% 7.6% 484 360.78 13.00

2018 6.9% 28.3% 16.9% 507 465.77 34.59

Disclaimer

Nothing presented herein is, or is intended to constitute, specific investment advice. Nothing in this research report should be construed as a recommendation to follow any investment strategy or allocation. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. While Sure Dividend has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability or completeness of third-party information presented herein. No guarantee of investment performance is being provided and no inference to the contrary should be made. There is a risk of loss from an investment in marketable securities. Past performance is not a guarantee of future performance.

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