Amazon: A Growth or Value Stock?

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1. The Company

Amazon (AMZN) has been at time a growth investor stock and a value investor stock. Charlies Munger recently said that Amazon disruptive business model is likely to change America. He right that Amazon a disruptive business model, its probably the most disruptive business since Standard & Oil. Now Amazon has receive the fire phone which is the first 3D phone to be made and only time will tell how the phone will do against Samsung and Apple.

1.2 Company History

Was founded in Seattle, Washington in 1994 by Jeff Bezos to sell books online. He believed that online commerce was the future and that their is a a large world wide demand for literature. The company online bookstore was a massive success, that had rapid growth and a massive competitive advantage to the brick and motors who can only offer about 200,000 title, while Amazon can offer an unlimited virtual warehouse of book titles. The company's initial business plan was unusual, it did not expect to make a profit for four years to five years. Amazon unconventional business model caused shareholders and investors didn't like the slow growth for Amazon to reach profitability. The company finally made a profit in the Fourth Quarter of 2001 of $5 million own revenues of $1 billion. Today Amazon sells a wide range of products on its site from books to fresh food. Amazon manufacturers and sells E-Rearder and Kindles to the general public. The company Kindle tablets holds at the end of 2013 a market share of 9.4%.

2. Business Overview

The company is the largest online retailer in the world and continues to expand its business from books to now cell phone. Amazon now sells DVDs, VHS, CDs, video, and MP3, downloads/streaming, software, video games, electronics, apparels, and the company also produces comsumer electronics notably the fire phone, amazon kindle e-book, reader, and the kindle fire tablet computer. The company is also a major proivider of cloud computing services.

2.2 Subsidiares:

• A9.com - A company that is focus on researching and building innovated technology
• Lab126 - Developers of consumer electronics like the Kindle
• Endless Shoe - E-commerce site for shoes
• Brillance Audio - Largest independent audiobook producer in the United States

Amazon owns over 40 subsidiares including Zappos, Diapers.com, Kiva Systems, Goodread, and IMDb.

2.3 Management Compensation

Key Executive Compensation

2,339,395

28,825,745

2,407,345

51,291,918

2,407,470

	Jeffrey P. Bezos/Chief Executive Officer		1,781,840	1,681,840	1,681,840	1,681,840	1,681,840

	Thomas J. Szkutak/Senior Vice President and Chief Financial Officer		163,200	6,628,500	163,200	8,451,369	163,200

	Diego Piacentini/Senior Vice President, International Consumer Business		230,905	6,696,205	230,905	11,819,223	230,905

	Jeffrey A. Wilke/Senior Vice President, Consumer Business		163,450	7,190,700	168,200	17,727,806	168,325

	Andrew Jassy/Senior Vice President, Web Services		-	6,628,500	163,200	11,611,680	163,200

3. Finances

Balance Sheet

2013 31/12	2012 31/12	2011 31/12	2010 31/12
Total Current Assets	24625	21296	17490	13747
Cash and Short Term Investments 12447 11448 9576 8762 Cash 2707 - - - Cash & Equivalents 5951 8084 5269 3777 Short Term Investments 3789 3364 4307 4985 Total Receivables, Net 4767 3817 2571 1587 Accounts Receivables - Trade, Net 4767 3817 2571 1587 Total Inventory 7411 6031 4992 3202 Prepaid Expenses - - - - Other Current Assets, Total - - 351 196
Total Assets	40159	32555	25278	18797
Property/Plant/Equipment, Total - Net 10949 7060 4417 2414 Property/Plant/Equipment, Total - Gross 14809 9582 5786 3256 Accumulated Depreciation, Total -3860 -2522 -1369 -842 Goodwill, Net 2655 2552 1955 1349 Intangibles, Net 645 725 647 563 Long Term Investments - - - - Note Receivable - Long Term - - - - Other Long Term Assets, Total 1285 922 769 724 Other Assets, Total - - - -
Total Current Liabilities	22980	19002	14896	10372
Accounts Payable 15133 13318 11145 8051 Payable/Accrued - - - - Accrued Expenses 5288 3792 3751 1860 Notes Payable/Short Term Debt - - - - Current Port. of LT Debt/Capital Leases - - - - Other Current liabilities, Total 2559 1892 - 461
Total Liabilities	30413	24363	17521	11933
Total Long Term Debt 5181 3830 1415 641 Long Term Debt 3191 3084 255 184 Capital Lease Obligations 1990 746 1160 457 Total Debt 5181 3830 1415 641 Deferred Income Tax - - - - Minority Interest - - - - Other Liabilities, Total 2252 1531 1210 920
Total Equity	9746	8192	7757	6864
Redeemable Preferred Stock, Total - - - - Preferred Stock - Non Redeemable, Net - - - - Common Stock, Total 5 5 5 5 Additional Paid-In Capital 9573 8347 6990 6325 Retained Earnings (Accumulated Deficit) 2190 1916 1955 1324 Treasury Stock - Common -1837 -1837 -877 -600 ESOP Debt Guarantee - - - - Unrealized Gain (Loss) - - 10 13 Other Equity, Total -185 -239 -326 -203
Total Liabilities & Shareholders' Equity	40159	32555	25278	18797
Total Common Shares Outstanding	459	454	455	451
Total Preferred Shares Outstanding	-	-	-	-

Cash Flow Statements

2013 31/12	2012 31/12	2011 31/12	2010 31/12
Period Length:	12 Months	12 Months	12 Months	12 Months
Net Income/Starting Line	274	-39	631	1152
Cash From Operating Activities	5475	4180	3903	3495
Depreciation/Depletion 3253 2159 1083 568 Amortization - - - - Deferred Taxes -156 -265 136 4 Non-Cash Items 1337 802 589 190 Cash Receipts - - - - Cash Payments - - - - Cash Taxes Paid 169 112 33 75 Cash Interest Paid 97 31 14 11 Changes in Working Capital 767 1523 1464 1581
Cash From Investing Activities	-4276	-3595	-1930	-3360
Capital Expenditures -3444 -3785 -1811 -979 Other Investing Cash Flow Items, Total -832 190 -119 -2381
Cash From Financing Activities	-539	2259	-482	181
Financing Cash Flow Items 78 429 62 259 Total Cash Dividends Paid - - - - Issuance (Retirement) of Stock, Net - -960 -277 - Issuance (Retirement) of Debt, Net -617 2790 -267 -78
Foreign Exchange Effects	-86	-29	1	17
Net Change in Cash	574	2815	1492	333

Amazon revenues increased 22% to $74.45 billion and net income totaled $274 million vs a loss of $39 million in 2013. North America Revenues increased 28% to $44.52 billion and international segment increased 14% to $29 billion for 2013. Online sales increased 28% to $44.52 billion in 2013. Amazon sell at 628 times its earnings of $0.60 per share. This shows that Amazon is overvalued and sells at a earning multiple that is over 500 times that of the NASDAQ which sells at 21.42. If Amazon sold at the same multiple as the NASDAQ it would sell at only $13 per share. People are willing to buy Amazon to 512 times its earnings, means people believe that Amazon will grow into this valuation.

4. Valuation

Valuation Ratio

Price to Earnings (P/E)	628.62
Earnings Per Share (EPS)	$0.60
Next Years (EPS)	$0.66
Sales Per Share	$162.11
Book Value Per Share	$21.22
Growth Rate	10.69%
Price to Book (P/B)	17.67
EV/EBITDA	46.82

Amazon Revenues per Employees

• 2013: $593,600
• 2012: $839,000
• 2011: $855, 463
• 2010: $1,014,955
• 2009: $1,008,601
• 2008: $925,894
• 2007: $872,647
• 2006: $770,576
• 2005: $707,500
• 2004: $769,000
• 2003: $674,872
• 2002: $524,400
• 2001: $400,256
• 2000: $306,889
• 1999: $215,789
• 1998: $290,476
• 1997: $241,042
• 18 year Average: $611,720

Average 5-Year Growth Rates

Revenues Growth Rate	31.39%
Operating Income Growth Rate	17.85%
Net Income Growth Rate	31.71%
Free Cash Flow Growth Rate	17.75%
Capex Growth Rate	61%
Earnings Growth Rate	32%

Amazon Has average revenues per employees of $611,720 and has sales per share of $162.11. Based on Amazon sales per share its only sell for about 2x its sales while the industry average is 4.46x. If Amazon sold at 2.5x to 3x its sales per share then its would sale for about $405.27 to $486.33. Traditional valuation method are not the best way to way Amazon since its doesn't take into account it market share, its sales per employees, its sales per share, or its reinvestment of its earnings and free cash flow to gain market share. Earnings and cash flow aren't as good as they would be if Jeff Benzo wasn't reinvesting earnings and cash flow back into the business to grow its future earnings and cash flow. The question you should ask is what are you willing to pay to for a company like Amazon.

5. Risk

The only real risk is that you will overpay for Amazon stock and underperform the market or worse the stock will crash. The potential for permanent loss of capital is there and will be there, but you have to look at Amazon Business and ask yourself do I want to know a piece of this business and then what price you are willing to pay. You have to decide how high the potential for permanent loss of capital and how to limited it when or if you buy.