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(Clickbait title. lol Sorry about that. Please actually read this before commenting.)
**Business:** Amazon needs no introduction. It's a mega-cap tech giant with 38-40% of revenues in online retail, 16-18% in AWS, and the rest split among advertising, subscriptions, streaming, and other smaller ventures.
**Financial History:** Amazon is considered part of the "consumer discretionary" sector, because a large percentage of its revenues comes from online retailing, which ebbs and flows with the strength of the economy (or, to put another way, how willing customers are to spend extra money).
**Market Share:** Amazon holds a \~38% share of the US e-commerce market, which is expected to grow at a 20%+ rate in the next 3-5 years.
**Competition:** In the e-commerce market, competitors are comparatively much smaller, with Walmart cornering only \~6% of the market, and eBay cornering \~3%.
**Macroeconomy:** I expect Amazon to maintain its dominance in the e-commerce space. Its ROIC has been fairly turbulent in the past 5 years, but I think it will remain roughly equivalent to its cost of equity in the long-term (and marginally better short-term). Despite fears of an AI bubble, I don't think a failure there will be greatly harmful for its long-term cash flows.
**Business Story, 'The Bully':** It has long settled into its position as the largest, most successful online retailer in the world. It has enormous access to capital and a lasting brand name. Other than its brand, it also holds a significant network effect, with buyers and sellers congregating to it (which in turn attracts more buyers and sellers). This is to say nothing about its moats for streaming or web services.
**Model Considerations:** Due to its low augmented dividends, Amazon would have a very low outcome if compared to the dividend discount model. While I could instead use a FCFE or FCFF model, I want to consider how Amazon is priced relative to the market (that is to say, using relative valuation).
The typical way analysts use relative valuation is by comparing firms to other firms in the industry (with the implicit assumption that other firms in the industry have the same general profiles). This isn't always true, which presents a problem. If we can instead take a wider set of companies, and control for cash flows, growth, and risk profiles, we can theoretically find the fair multiple Amazon should be trading at (assuming that the market overall is correctly priced, while individual companies may not be).
Professor Aswath Damodaran has done regressions of the overall US market, coming to the following equation (as of January 2026):
* PE = 13.12 + 10.52 \* Beta + 36.47 \* Growth (forecasted) + 8.46 \* Payout
A regression like this is useful because you can control for the three important variables in valuation (cash flows, growth, and risk), without lowering your sampling size. Any deviations from this predicted value should be because of variables outside the fundamentals, or even market inefficiency.
**Valuation:**
* Beta: 1.296 (I used a 5-year daily historical regression, as I don't think there's any nontrading day risk for such a large, liquid company).
* Analyst Annual Growth Forecast (3-5 Years): 15%
* Payout: 2.989% (from normalizing buybacks to revenues over the past 5 years)
* Diluted EPS (TTM, net of extraordinary items): $7.155
* PE = 13.12 + 10.52\*1.296 + 36.47 \* 0.15 + 8.46 \* 0.02989 = 32.48
* Predicted Value: 32.48\*7.155 = $232.4
* Market Price: $238.38
I decided to use the US regression for Amazon's multiple because it is a US-based company, despite having business overseas. Knowing this, though, I also calculated the predicted multiple from the global stock market, but this resulted in an even lower result. This is all to say that, with a predicted value of $232.4, compared to the market value of $238.38, Amazon seems to be fairly priced.
That's a lot of hoopla to come to a disappointing conclusion, but there's ***nothing wrong with a wonderful company at a fair price.*** What are your thoughts, and what values do you come to when using DCF models instead? Also, thought I'd try a clickbait with that title. Lol Sorry about that.