Raising Amazon’s Fair Value After Transformational 2017
Several emerging cash-flow drives like advertising and third-party seller services are contributing to the bottom line sooner than we had expected.
Our key takeaway from wide-moat
We're planning to raise our fair value estimate from $1,250 per share to $1,600, with $75 of the increase attributed to time value of money, $100 due to a lower effective tax rate, and the remainder from more optimistic five-year revenue growth and margins estimates stemming from the aforementioned emergent cash flow drivers. Our model now assumes 21% average annual revenue growth from 2018 to 2022, including 26% growth from third-party seller services, 34% from retail subscription services, 38% from AWS, and 43% from other sources. While Amazon's growth will still require fulfillment, technology, and content investments, we see a path to 6% margins over the next five years (compared with 2.3% in 2017). Even after the post-fourth-quarter rally, we view shares as undervalued.
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