Stock Analysis on Net
Stock Analysis on Net

Amazon.com Inc. (NASDAQ:AMZN)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Amazon.com Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 15.55%
01 FCFF0 39,410
1 FCFF1 43,844 = 39,410 × (1 + 11.25%) 37,944
2 FCFF2 49,045 = 43,844 × (1 + 11.86%) 36,733
3 FCFF3 55,164 = 49,045 × (1 + 12.48%) 35,756
4 FCFF4 62,383 = 55,164 × (1 + 13.09%) 34,994
5 FCFF5 70,930 = 62,383 × (1 + 13.70%) 34,434
5 Terminal value (TV5) 4,360,606 = 70,930 × (1 + 13.70%) ÷ (15.55% – 13.70%) 2,116,916
Intrinsic value of Amazon.com Inc. capital 2,296,777
Less: Debt and finance leases (fair value) 60,802
Intrinsic value of Amazon.com Inc. common stock 2,235,975
 
Intrinsic value of Amazon.com Inc. common stock (per share) $210.99
Current share price $222.88

Based on: 10-K (reporting date: 2024-12-31).

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Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Amazon.com Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 2,362,022 0.97 15.88%
Debt and finance leases (fair value) 60,802 0.03 2.91% = 3.74% × (1 – 22.21%)

Based on: 10-K (reporting date: 2024-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 10,597,729,352 × $222.88
= $2,362,021,917,973.76

   Debt and finance leases (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (13.50% + 18.96% + 54.19% + 12.56% + 11.84%) ÷ 5
= 22.21%

WACC = 15.55%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Amazon.com Inc., PRAT model

Microsoft Excel
Average Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Selected Financial Data (US$ in millions)
Interest expense 2,406 3,182 2,367 1,809 1,647
Net income (loss) 59,248 30,425 (2,722) 33,364 21,331
 
Effective income tax rate (EITR)1 13.50% 18.96% 54.19% 12.56% 11.84%
 
Interest expense, after tax2 2,081 2,579 1,084 1,582 1,452
Interest expense (after tax) and dividends 2,081 2,579 1,084 1,582 1,452
 
EBIT(1 – EITR)3 61,329 33,004 (1,638) 34,946 22,783
 
Current portion of lease liabilities, finance leases 1,375 2,032 4,397 8,083 10,374
Current portion of long-term debt 5,017 8,494 2,999 1,491 1,155
Long-term lease liabilities, finance leases, excluding current portion 9,227 10,077 11,386 15,670 18,060
Long-term debt, excluding current portion 52,623 58,314 67,150 48,744 31,816
Stockholders’ equity 285,970 201,875 146,043 138,245 93,404
Total capital 354,212 280,792 231,975 212,233 154,809
Financial Ratios
Retention rate (RR)4 0.97 0.92 — 0.95 0.94
Return on invested capital (ROIC)5 17.31% 11.75% -0.71% 16.47% 14.72%
Averages
RR 0.94
ROIC 11.91%
 
FCFF growth rate (g)6 11.25%

Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).

1 See details »

2024 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 2,406 × (1 – 13.50%)
= 2,081

3 EBIT(1 – EITR) = Net income (loss) + Interest expense, after tax
= 59,248 + 2,081
= 61,329

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [61,329 – 2,081] ÷ 61,329
= 0.97

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 61,329 ÷ 354,212
= 17.31%

6 g = RR × ROIC
= 0.94 × 11.91%
= 11.25%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (2,422,824 × 15.55% – 39,410) ÷ (2,422,824 + 39,410)
= 13.70%

where:

Total capital, fair value0 = current fair value of Amazon.com Inc. debt and equity (US$ in millions)
FCFF0 = the last year Amazon.com Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Amazon.com Inc. capital

FCFF growth rate (g) forecast

Amazon.com Inc., H-model

Microsoft Excel
Year Value gt
1 g1 11.25%
2 g2 11.86%
3 g3 12.48%
4 g4 13.09%
5 and thereafter g5 13.70%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 11.25% + (13.70% – 11.25%) × (2 – 1) ÷ (5 – 1)
= 11.86%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 11.25% + (13.70% – 11.25%) × (3 – 1) ÷ (5 – 1)
= 12.48%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 11.25% + (13.70% – 11.25%) × (4 – 1) ÷ (5 – 1)
= 13.09%