This site requires a more recent version of Adobe Flash Player to function properly.
Go here to get Flash.
Trefis's graphical modelling tools require Flash, but here's a preview of some of the content you'll see once
Flash is enabled:
Investment Overview for Amazon (NASDAQ:AMZN)
Below are key drivers of Amazon's value that present opportunities for upside or downside to the current Trefis price estimate for Amazon:
- Amazon's International EGM Market Share: We currently forecast the share of Amazon's international electronics and general merchandise revenues in international e-commerce market to increase from about 2.47% in 2013 to 3.87% by the end of our forecast period. However, given the intense competition in the space, there could be a 10% downside to our price estimate if this figure was to remain flat. On the other hand, there could be upside of similar order if the figure jumps to 5.15% instead.
- General Merchandise EBITDA Margin : We currently forecast Amazon's general merchandise EBITDA margin to increase from 8.13% in 2013 to nearly 10.4% by the end of our forecast period. There could be 10% upside to the our price estimate if these margins were to increase to 12% instead. On the other hand, there could be 15% downside if margins were to remain flat.
Books, DVDs & Music
- Amazon International Online Books and Music Share: We currently forecast that the share of Amazon's international books and music revenues in international e-commerce market will remain flat around 1.56%. However, there could be 10% to our price estimate if this figure was to increase to 2.5% which may be a tough task given recent trends.
For additional details, select a driver above or select a division from the interactive Trefis split for Amazon at the top of the page.
Amazon is an online retailer which sells books, DVDs, music, games, apparel and other merchandise to consumers in the U.S., Canada, the United Kingdom, Germany, France, China, Japan and some other countries. The company also provides web services such as cloud computing and online storage to web sites and web developers.
General merchandise business is most valuable for Amazon due to the company's high growth within this segment. Compared to a compounded annual growth rate of 11.2% that the company saw for its books and music segment, the figure for general merchandise business stood at 34.5%. In addition, this segment accounted for roughly 66% of Amazon's total revenues in 2013. Unlike books and music, Amazon's general merchandise business has been gaining share in global e-commerce market.
Explosive growth in global e-commerce market
The global e-commerce market is growing rapidly as consumers continue to shift to Internet for their purchases. Much of this is being driven by the growing Internet penetration, surge in sales of Internet enabled devices such as tablets, notebooks and smartphones, and the continued improvement in online payment systems. We estimate that the global online retail market has jumped from $429 billion in 2009 to roughly $963 billion in 2012, and is expected to grow at an annual rate of roughly 15% for the foreseeable future.
Growing high margin web services business
The growth in Amazon's web services has become a critical factor driving the company's expansion globally. The enterprises continued to flock to Amazon in 2013. Besides helping big businesses, the company’s cost efficient web services are useful for young start-ups that may have cash restrictions. The aggressive ongoing price war between Google, Microsoft and Amazon suggests that the company enjoys considerable margins on these services. We believe that the growing popularity of these services will mitigate the negative impact of the costs associated with fulfillment centers that Amazon is opening to speed up the delivery of physical goods to customers. As more online retailers spring up and traditional giants ramp up their online efforts, Amazon will have to make additional investments and may face risk of profit decline as its margins are already very low. Expanding web services can help mitigate this risk to a certain extent.
Amazon Prime service gaining subscribers
Amazon Prime service has more than 20 million subscribers and appears to be growing rapidly. The subscription offers free shipping along with access to video content. This implies that streaming content is just acting as one of the key features of the service that attract subscribers.
While the revenues earned from the Prime service account for just 2% of the company’s total sales, the margins are much higher. Additionally, a report suggests that Prime customers tend to buy twice as much as the regular customers and overall accounted for 10% of the purchases in 2012. This proportion could increase going forward as Amazon continues to invest in the streaming content to lure in more buyers
Trefis Forecast Rationale for Kindle Units Sold
This represents the total number of Kindle units sold in a given year, including Kindle e-reader and Kindle Fire.
We estimate that the number of Kindle units sold has increased from 2.4 million in 2009 to 19.7 million in 2013. However, if we just look at the last tow years, Amazon's Kindle devices seem to be losing their appeal to consumers and Android based tablets are gaining share. As a result we are not too optimistic about Kindle's future growth.
Trefis considered the following factors for its forecast:
- Growing popularity of tablets
- Tablet sales have surged in recent years, with Apple and Android based tablets commanding majority share. However, this trend has helped spur the growth in Kindle Fire's sales as well. Consumers are increasingly shifting to tablets for their basic computing and entertainment needs, which has put pressure on the growth of PC industry.
- Growing selection of eBooks
- Amazon offers millions of e-books and the number of titles in Kindle Owners’ Lending Library in 2013 grew from 250,000 books to more than 475,000 books. These are the books that Kindle owners with a Prime membership can borrow for free with no due date.
- The company has also expanded its library in other countries such as Australia where it offers over 2 million e-books with 400,000 exclusive titles.
- Competitive pricing
- Amazon has a track record of offering most competitive prices, and could potentially do the same for its e-readers and tablets. Ultimately, the company wants to promote the sales of digital content through these devices and wouldn't mind taking a hit on hardware margins.
Back to Company Overview
- Competition from Android based tablets and Apple's iPad
- The total e-reader and tablet sales for Amazon saw a slight decline in 2013 according to our estimates as Android based tablets chipped away some share. There is a good chance that Samsung, Apple and other companies will make technically superior products with operating systems that boast of a huge app base. This will make it difficult for Amazon to grow Kindle fire's sales.
- Additionally, e-readers may lose popularity as consumers use tablets for reading e-books as well.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
View All Help Topics