“One of Wall Street’s favorite strategies for assessing corporate value is a “sum of the parts” approach: Make a list of what the company owns, put a value on each part, then add it all up.
For some of Amazon’s businesses, appropriate comparisons are hard to find. There are no pure-play public cloud stocks that look anything like AWS; its primary rivals— Microsoft (MSFT) Azure and Google Cloud—are likewise buried inside large businesses. Amazon’s ad business is valuable, but it’s linked to the core e-commerce business and therefore defies an easy value.
Then there’s Amazon Prime, which includes a Netflix-like video streaming service plus a Spotify-like music service. There are other businesses hidden in the company’s financials, including the videogame streaming service Twitch, the audiobook company Audible, the podcasting producer Wondery, and autonomous-vehicle maker Zoox, just to name a few.
In reporting this story, Barron’s found at least four different attempts by Wall Street analysts to suss out the company’s true value. They involve different parts, different metrics, and varying conclusions. The only consistent theme? Amazon’s parts add up to a lot more than its current market value.“
Though it’s not a comment on Amazon at all, just out of curiosity:
Has anyone here ever seen a sum-of-parts analysis for any firm that did NOT conclude that the firm in question was worth way more than its market cap?
We spent 20 years doing prospective follow up on a cohort of 16,000 individuals to assess the relative risk of XXXX.
No correlation was found. Data can be found in Appendices I-XXI. No further study is warranted.
The resumes of the authors can be found in Appendix XXII.
“The only consistent theme? Amazon’s parts add up to a lot more than its current market value.”
Convince me. Their margins are paltry despite so many wonderful assets like AWS. How much, exactly, does their e-commerce biz lose annually to produce such low integrated margins in the face of such excellent assets, and does Amazon’s commerce biz need AWS, Prime, etc. to survive?
…does Amazon’s commerce biz need AWS, Prime, etc. to survive?
Even if that were true, so what? It’s all part of the big picture. Does Costco’s commerce biz need its membership fees and associated benefits to survive?
Their margins are paltry
Which margin? AWS margin? Ad business margin? Which one is paltry?
“Even if that were true, so what? It’s all part of the big picture. Does Costco’s commerce biz need its membership fees and associated benefits to survive?”
You’re making my point. Costco as a retailer couldn’t survive without membership fees, so you would never try to value it based on the sum of its parts.
The sum of the parts valuation of Amazon only works if AWS, Prime, the logistics biz, all all the other bits and pieces are worth more than Amazon today without the e-commerce biz.
The sum of the parts valuation of Amazon only works if AWS, Prime, the logistics biz,
There you lost it. If you are arguing you cannot value Prime, retail, logistics business separately, perhaps, just perhaps there is an argument.
When you include AWS in the mix…
It is perfectly okay if you don’t see value or a reason to buy a stock.
You’re making my point.
It’s not clear what your point is.
You also wrote: “Their margins are paltry despite so many wonderful assets like AWS.” That sounds more like a knock on the current value of AMZN than it does on a “sum of parts” exercise.
So, bottom line: Do you think AMZN is expensive, cheap, or fairly priced currently? And why?
The sum of the parts valuation of Amazon only works if AWS, Prime, the logistics biz, all all the other bits and pieces are worth more than Amazon today without the e-commerce biz
Clearly, there are folks who like Amazon and those who don’t. Looks like those who don’t, just ignore all the value creation and argue about useless metrics be it EPS, or margin.
Yesterday Amazon announced a healthcare deal, think about that for a minute. In one stroke Amazon opens remote healthcare to its 110 million prime subscribers.
Amazon moved from books to electronics to dog food to diapers to grocery to cloud computing (#1) to streaming movies, and music (#2 behind spotify) to to healthcare. All these expansions are internally financed. This organic growth is under appreciated.
Instead of looking at past margins, try calculating what kind of future margins they can do by using peer comparisons. No one is going to argue that Amazon operations/ executions is worse that their peers. You should be able to see the income generation capability of their business.