Should you buy Amazon stock? Feb 2023
- 5 months ago
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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.