|
Related Topics |
Background and overview of Amazon (AMZN)
Amazon ha the honor of being the largest retailer on earth, and this without operating a single retail outlet. Amazon is a online based retail store and ships all their goods across the planet. Even though they dont operate any retail outlets, Amazon employs a massive 240 000 people, working across various sectors from software and website to support and call centre staff to staff working in warehouses that reaches the size of 28 football fields or contains enough steel to build an Eiffel Tower.
Scroll over or click on the funnel chart to get more details of AMZN's latest financial results.
Financial review:
Amazon is sitting on a net profit margin of 2.8%. So essentially for every $100 they receive they make $2.8 in profits after paying all expenses and taxes. This is not the highest profit margin ever seen, but considering that they are in essence a retailer and there is stiff competition in the sector, margins are squeezed. If one retailer sells a product at a higher price than the other, people will just go to the other retailer. This "voting with their feet" phenomenon keeps prices subdued and margins squeezed in the retail sector.
Diluted earnings per share came in at $1.78 a share for the quarter. This places AMZN on a PE ratio of 118 (assuming the next two quarters of the fiscal year's earnings will be the same as that of first two quarters). The PE is outrageously high and we not sure if the market expects AMZN to earn tremendous profits in future (I.e their future PE ratio being a lot lower). Perhaps the market is hoping their expansion into India will deliver such future earnings (as India is the second most populous nation on earth, just behind China).
Diluted earnings per share came in at $1.78 a share for the quarter. This places AMZN on a PE ratio of 118 (assuming the next two quarters of the fiscal year's earnings will be the same as that of first two quarters). The PE is outrageously high and we not sure if the market expects AMZN to earn tremendous profits in future (I.e their future PE ratio being a lot lower). Perhaps the market is hoping their expansion into India will deliver such future earnings (as India is the second most populous nation on earth, just behind China).
Cash generated by operating activities for the 3 months amounted to $3465million (or roughly $7.17 a share). Cash and equivalents on their balance sheet at the end of the three month period was $12,521million (or $25.92 a share).
Pie chart shows revenue earned nad operating profit per region for AMZN:
Pie chart shows revenue earned nad operating profit per region for AMZN:
From the pie chart it's clear the majority of Amazons revenue comes from sales in North America. On the income side the profits earned between North America and AWS (Amazon Web Services) are almost dead even. No profits are shown for international as this section made a loss during the three months, even though it contributes almost 33% to revenue.
Below we will take a look at a few of AMZN's financial ratios and then provide a valuation based on AMZN's current financial results.
Below we will take a look at a few of AMZN's financial ratios and then provide a valuation based on AMZN's current financial results.
A few financial ratios for AMZN (calculated using our Financial Ratios Calculator):
- Debt to Equity Ratio: 2.93 (more than 2 shows high levels of financial leverage).
- Current Ratio: 1.09 (A measure of liquidity. Less than one signals possible trouble in paying off current liabilities).
- Quick Ratio: 0.76 (Another liquidity measure. Shows how much in liquid assets is available to cover current liabilities or short term debt).
- Return on Assets (ROA): 1.32%
- Return on Equity (ROE): 5.17%
- Net Profit Margin: 2.82%
- Dividend Yield: 0%
Valuation:
Based on AMZN's current financial results we value them at between $866 and $868. We therefore feel that AMZN does offer a bit of value at this price. Some might say we are crazy and the PE ratio and forward PE ratio at that valuation is far to high. Here's the thing though. Their AWS (cloud services) have small contribution to turnover but massive contribution to income. So high margins are earned there. And with them rolling out the service in India, we believe future earnings will benefit from this. And as more businesses the world over move to cloud AMZN will benefit greatly. A recent Goldman report said AMZN's cloud computing revenue is 5 times that of Microsoft (MSFT)
For South African investors, please remember exchange rate movements will have an impact on the value of your AMZN shares when the value is calculated in Rand terms.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question. Note this is not a binding valuation and investors should do their own research before investing in a specific share. Southafricanmi.com cannot be held liable for any losses incurred, We would accept donations on profits made though ;)
For South African investors, please remember exchange rate movements will have an impact on the value of your AMZN shares when the value is calculated in Rand terms.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question. Note this is not a binding valuation and investors should do their own research before investing in a specific share. Southafricanmi.com cannot be held liable for any losses incurred, We would accept donations on profits made though ;)