Financial Analysis Kaytlynn Clemons Evan Whittaker

BACKGROUND Founded in 1994 Started as an Internet bookstore Now the largest Internet- based retailer in the U.S. KC:

PRODUCTS & SERVICES PRODUCTS SERVICES Amazon Dash Button Amazon Echo Kindle FireTV Delivery of goods Prime Air Prime Now Amazon Prime Streaming Video Cloud Storage Services via Other Companies i.e. Twitch KC

MARKETS & CUSTOMERS Domestic & International Markets Germany Japan United Kingdom Expanding in India and China All sales and services require Internet Higher-Income customers are a key demographic Primary consumer age groups are 30-39 and 40-49 Customers typically know what they want KC

COMPETITORS Only partial competition Brick & Mortar stores Walmart, Target, BestBuy, etc. All have websites in an attempt to compete Online retailers Overstock.com, Jet.com, eBay, etc. EW

SOURCES All historic financial data for Amazon was collected using Bloomberg (except where noted) Historic risk-free rate uses 10-year note rate from Treasury.gov Historic market return rate uses S&P 500 return rate from MoneyChimp.com KC

HISTORIC EBIT (MILLIONS, USD) PROJECTED EBIT (MILLIONS, USD) FORECASTS - EBIT YEAR HISTORIC EBIT (MILLIONS, USD) 2006 389 2007 655 2008 842 2009 1180 2010 1406 2011 862 2012 751 2013 757 2014 348 2015 2233 YEAR PROJECTED EBIT (MILLIONS, USD) 2016 1,318.28 2017 1,438.23 2018 1,558.18 2019 1,678.13 2020 1,798.08 2021 1,918.03 2022 2,037.98 2023 2,157.93 2024 2,277.88 2025 2,397.83 *Projections utilized double exponential smoothing method* *Projections from Crystal Ball

FORECASTS – TAX RATE Projected tax rate is the average of tax rates from the previous 11 years: YEAR HISTORIC TAX RATE 2006 49.6% 2007 27.88% 2008 27.69% 2009 21.79% 2010 23.51% 2011 31.16% 2012 78.86%% 2013 31.82% 2014 0% 2015 60.59% 34.1% KC: Note how tax rate was calculated

FORECASTS – CAPITAL EXPENDITURES YEAR HISTORIC CAPEX (MILLIONS, USD) 2006 216 2007 224 2008 333 2009 373 2010 979 2011 1,811 2012 3,785 2013 3,444 2014 4,893 2015 4,589 YEAR PROJECTED CAPEX (MILLIONS, USD) 2016 5,419.24 2017 5,971.43 2018 6,523.62 2019 7,075.81 2020 7,628.01 2021 8,180.20 2022 8,732.39 2023 9,284.58 2024 9,836.77 2025 10,388.96 EW *Projections from Crystal Ball

FORECASTS - DEPRECIATION YEAR HISTORIC DEP (MILLIONS, USD) 2006 200 2007 246 2008 287 2009 384 2010 552 2011 1,000 2012 1,700 2013 2,500 2014 3,600 2015 4,900 YEAR PROJECTED DEP (MILLIONS, USD) 2016 2,740 2017 3,088 2018 3,365.6 2019 3,538.72 2020 3,526.46 2021 3,251.76 2022 3,354.11 2023 3,407.33 2024 3,415.68 2025 3,391.07 KC *Projections are moving average of last 5 years

FORECASTS - △ WORKING CAPITAL YEAR HISTORIC △WC (MILLIONS, USD) 2006 284 2007 832 2008 714 2009 1,612 2010 1,581 2011 1,464 2012 1,523 2013 767 2014 974 2015 2,557 YEAR PROJECTED △WC (MILLIONS, USD) 2016 2,009.21 2017 2,111.39 2018 2,213.58 2019 2,315.77 2020 2,417.96 2021 2,520.15 2022 2,622.33 2023 2,724.52 2024 2,826.71 2025 2,928.90 EV *Projections from Crystal Ball

FORECASTS – REINVESTMENT RATE YEAR CAPEX-DEP+△WC EBIT(1-T) REINV. RATE 2006 300 336.1 0.73 2007 810 472.39 1.71 2008 760 608.85 1.25 2009 1601 922.88 1.73 2010 1,075.45 1.87 2011 2275 593.4 3.83 2012 3608 158.76 22.73 2013 1711 516.12 3.32 2014 2267 348 6.51 2015 2246 880.03 2.55 YEAR CAPEX-DEP+△WC EBIT(1-T) REINV. RATE 2016 4,688.45 868.75 5.40 2017 4,994.83 947.79 5.27 2018 5,371.6 1,026.84 5.23 2019 5,852.86 1,105.89 5.29 2020 6,519.5 1,184.93 5.5 2021 7,448.59 1,263.98 5.89 2022 8,000.61 1,343.03 5.96 2023 8,601.77 1,422.08 6.05 2024 9,247.81 1,501.12 6.16 2025 9,926.79 1,580.17 6.28 KC *Reinvestment Rate = (CapEx-Dep+△WC) ÷ EBIT(1-T)

FORECASTS – FREE CASH FLOWS YEAR HISTORIC FCFF (MILLIONS, USD) 2006 486 2007 1,181 2008 1,364 2009 2,920 2010 2,516 2011 2,092 2012 395 2013 2,031 2014 1,949 2015 7,331 YEAR PROJECTED FCFF (MILLIONS, USD) 2016 3,770.33 2017 4,350.11 2018 5,150.48 2019 4423.64 2020 4,641.41 2021 4,738.51 2022 4,601.19 2023 4,660.37 2024 4,666.69 2025 4,642.75 EV *Projections are moving average of last 3 years

HISTORIC LTD (MILLIONS, USD) HISTORIC INT EXP (MILLIONS, USD) WACC - DEBT YEAR HISTORIC LTD (MILLIONS, USD) HISTORIC INT EXP (MILLIONS, USD) HISTORIC COST OF DEBT 2006 1,247 78 6.26% 2007 1,282 77 6.01% 2008 533 71 13.32% 2009 240 34 14.17% 2010 641 39 6.08% 2011 1,415 65 4.59% 2012 3,830 92 2.40% 2013 5,181 141 2.72% 2014 19,489 210 1.08% 2015 14,183 459 3.24% INT EXP/LTD Projected cost of debt is the average of the last 11 years: KC 5.99%

WACC – EQUITY YEAR HISTORIC # OF SHARES (MILLIONS) HISTORIC STOCK PRICE (USD) HISTORIC EQUITY (MILLIONS, USD) 2006 414 39.46 16,336.44 2007 431 92.64 39,927.84 2008 428 51.28 21,947.84 2009 444 134.52 59,726.88 2010 451 180 81,180 2011 455 173.1 78,760.5 2012 454 250.87 113,894.98 2013 459 398.79 183,044.61 2014 465 310.35 144,312.75 2015 471 675.89 318,344.19 EW

WACC – EQUITY (Continued) YEAR HISTORIC BETA HISTORIC RISK-FREE RATE HISTORIC MARKET RETURN RATE 2006 1.453 4.71% 15.74% 2007 0.893 4.04% 5.46% 2008 1.013 2.25% -37.22% 2009 0.861 3.85% 27.11% 2010 1.149 3.3% 14.87% 2011 1.197 1.89% 2.07% 2012 1.235 1.78% 15.88% 2013 1.379 3.04% 32.43% 2014 0.881 2.17% 13.81% 2015 1.07 2.27% 1.3% EW

WACC – EQUITY (Continued) YEAR HISTORIC EQUITY (MILLIONS, USD) HISTORIC COST OF EQUITY 2006 16,336.44 20.74% 2007 39,927.84 5.31% 2008 21,947.84 -37.73% 2009 59,726.88 23.88% 2010 81,180 16.59% 2011 78,760.5 2.11% 2012 113,894.98 19.19% 2013 183,044.61 43.57% 2014 144,312.75 12.42% 2015 318,344.19 1.23% CAPM Projected cost of equity is the average of the last 11 years: EW 10.19%

WEIGHT-ADJUSTED COST OF CAPITAL YEAR HISTORIC WACC (FORMULA) HISTORIC WACC (BLOOMBERG) 2006 19.49% 10.20% 2007 5.28% 11% 2008 -36.16% 11.7% 2009 23.83% 10.4% 2010 16.5% 11.2% 2011 2.12% 12% 2012 18.59% 11.9% 2013 42.42% 11.3% 2014 11.07% 9.1% 2015 1.23% 8.7% Projected WACC is the average of the last 11 years (using Bloomberg WACC): KC 11%

VALUATION – GROWTH RATE YEAR CASH (MILLIONS, USD) 2014 14,557 2015 15,890 (15,890/14,557)-1 = 0.09157 Projected growth rate = 9.16% (All other growth rate calculations yield g > WACC) EW

VALUATION – TERMINAL VALUE & TV+FCFF10 TV = FCFF11 ÷ (WACC – g) TV = 4656.6 ÷ (11% - 9.16%) TV = 282792.01 (Millions) TV = $282,792,010,000 FCFF10 = 4642.75 TV = 282792.01 TV+FCFF10 = 287434.76 (Millions) TV+FCFF10= $287,434,760,000 EW

VALUATION – PRESENT VALUE OF FIRM FCFF1 – 9 & FCFF10+TV 3770.33 4350.11 5150.48 4423.64 4641.41 4738.51 4601.19 4660.37 4666.69 287434.76 NPV (FCFF1-FCFF10+TV) WACC = 11% (Bloomberg) NPV = 126638.8 (Millions) NPV + Cash = 142538.8 (Millions) EW PV = $142,538,800,000

VALUATION – EQUITY & STOCK PRICE Value of Equity = Value of Firm – Value of Debt Value of Equity = 142538.8 – 14183 = 128355.8 (Millions) Value of Equity = $128,355,800,000 Stock Price = Value of Equity ÷ # of Shares KC Stock Price = 128355.8 ÷ 471 (Millions) = 272.52 Stock Price = $272.52

COMPARISON Current market price of stock is much higher than calculated intrinsic price $606.57 (April 27, 2016) vs $272.52 Enterprise value via Bloomberg is much higher than PV calculation $318 Billion Enterprise Value vs $142.5 Billion PV Calculation Likely due to limitations of formulas and computations in this project Other difficult factors – i.e. growth rate EW

LIMITATIONS Some formulas used for this project are simplistic in nature Access to information is somewhat limited Evaluation of a company with such extreme fluctuation in growth is challenging KC

CONCLUSION Though Amazon.com’s net income is not relatively high, it is still a valuable company Profit from sales of goods and services is not necessarily where the value comes from Amazon.com will likely continue to do well in the market for the foreseeable future Incredible growth rate in recent years Lack of direct competition Brand recognition KC

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