How Much Are Amazon’s Individual Divisions Worth?

Amazon’s (NASDAQ: AMZN) business has two main segments – the e-commerce business and cloud computing platform Amazon Web Services (AWS). The difference in the nature of these two businesses warrants analyzing them independently. Thus, we apply revenue multiples to each of Amazon’s business divisions to arrive at a sum of the parts (SOTP) valuation for the stock.

On a SOTP basis, we estimate the stock’s value to be $1,500 which is 20% lower than the current market price, suggesting that one or both divisions may be overvalued on a standalone basis. In this note, we take a look at the valuation of each. Our interactive dashboard on Amazon’s SOTP Price Estimate breaks down the divisional valuations. You can modify the key drivers to visualize the impact on the division’s valuations.

Amazon’s e-commerce business has two components – North America e-commerce and International e-commerce. The company’s e-commerce business offers goods and services through physical and online stores, third party sellers and subscription (Amazon Prime). While the North America e-commerce business has been profitable, Amazon’s marketing spending to fend off competition has led to operating losses in its International business. The company’s total e-commerce revenue is forecast to grow to around $213 billion (+33% y-o-y) in fiscal 2018. Furthermore, growth from Prime members (estimated at about 100 million) and Amazon’s acquisition of Whole Foods is likely to sustain growth going forward also.

The AWS business offers cloud based solutions for cloud computing, storage and other services. AWS continues to ride the cloud adoption wave, with revenues forecast to grow to $25 billion (+44% y-o-y) in fiscal 2018. Given the sustainable nature of the revenue growth in both of these business segments – at least in the near term – they can be independently valued on a revenue multiple basis.

To estimate the divisional enterprise value, we apply an EV/S multiple to revenues of both divisions. The use of EV/S entails the assumption of a sustainably growing business, which is quite the case for both of Amazon’s business segments.

Taking a cue from Walmart’s acquisition of Flipkart and adjusting for relatively lower growth rates globally, we apply an EV/S multiple of 2.5x to Amazon’s e-commerce business to arrive at an EV of $533 billion. For the AWS business, we derive the EV/S as the average of BVP Nasdaq Emerging Cloud Index of 8.5x to arrive at an EV of $214 billion. This gives us a total EV of $747 billion. Adjusting for the $2 billion of cash, we arrive at an equity value of $749 billion or $1,500 per share.

It should be noted that Trefis has a price estimate of $1,655 for Amazon’s stock on the whole. This is because the two divisions likely benefit from one another, leading to an overall valuation that is higher than our SOTP estimate.

Do not agree with our forecast? Create your own price forecast for Amazon by changing the base inputs (blue dots) on our interactive dashboard.