Amazon: Come For Ads, Stay For Services

Summary:

  • Today, I will walk you through where we’ve been with Amazon stock and where we’re going.
  • That is, we will discuss my thesis for Amazon that underlay my conviction in the business over the last year or so.
  • Then, we will expand this thesis via an analysis of what I believe to be the most noteworthy component of Amazon’s business: its services segment.
  • I will value Amazon’s services segment for you, providing key assumptions, such as margin structures that are not immediately obvious.
  • In short, I like Amazon at $142/share, though I don’t particularly adore it at these levels.

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At Long Last

In order to introduce my work on Amazon.com, Inc. (NASDAQ:AMZN), I ask that you allow me to spend a moment considering some adjacent ideas that I’ve been sharing with you in

TTM revenue [A]

$250 billion

Potential Free Cash Flow Margin [B] (conservative)

20%

Average diluted shares outstanding [C]

~10.8 billion

Free cash flow per share [ D = (A * B) / C ]

$4.62

Free cash flow per share growth rate (conservative)

10%

Terminal growth rate

2.5%

Years of elevated growth

10

Total years to stimulate

100

Discount Rate (Our “Next Best Alternative”)

9.8%


Analyst’s Disclosure: I/we have a beneficial long position in the shares of AMZN, META, CMG, MELI either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.


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