Running The Numbers – Amazon ($AMZN) still looks expensive
As recently as 11 August 2008 $AMZN was trading at US$88.09. With $AMZN now trading around the US$70 mark – does this represent a good opportunity to buy? We decided to look at the underlying numbers for $AMZN using the Valuecruncher on-line valuation model to see what we think about the current share price.
Valuecruncher valuation model of $AMZN with interactive assumptions
Valuecruncher produces a valuation of US$62.65 for $AMZN. This is a current valuation not a target price. This valuation is 10% below the current share price of US$69.96.
Assumptions
Our assumptions are revenues of US$19.5 billion in 2008 growing to US$30.5 billion in 2010. We have used an EBITDA margin of 7% in 2008 increasing to 8% in 2010. We used a terminal growth rate of 5%. We used a terminal capital expenditure number of US$375 million. We have used a WACC (discount rate) of 10.5%. All of these assumptions can be amended in the Valuecruncher on-line valuation model to adjust the valuation.
Our analysis incorporates the cash and debt on the $AMZN balance sheet – Valuecruncher calculates a net debt number.
Based on our analysis the current share price looks expensive. We recognise that $AMZN has a range of potentially valuable growth options (especially their Web Services platform). Currently it is very difficult to determine a value of these growth options – we have made a broad attempt with our growth projections and terminal growth rate. However, it appears that these options are being valued into the current share price at a level beyond what we are projecting. Play with our assumptions – what does your analysis say?
Disclosure: None.
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