Last week Amazon.com, Inc. (NASDAQ:AMZN) CEO Jeff Bezos unveiled the new Kindle Fire HD and Kindle Paperwhite; he compared the $499 Kindle Fire HD with the $729 Apple iPad 4G LTE (AAPL). Just before Bezos’ talk, Amazon had exhausted its stock of its existing Kindle Fire model. Though both Best Buy (BBY) and Office Depot (OPD) are taking orders for the Kindle Fire HD ahead of its shipping date, the tablet has yet to get FCC approval. Assuming all goes well with the FCC, Amazon could pose a major challenge to AAPL with its new product which comes with a cheap data plan and some neat features like X-Ray.
CapitalCube looks at Amazon.com, Inc. (NASDAQ:AMZN) with an in-depth analysis today on the company’s fundamentals. Our analysis, including our Fundamental Analysis Score, is always peer-based. In addition to the auto-generated list of peers we’ve customized Apple Inc. (NASDAQ:AAPL) as a peer for Amazon.com, Inc. (NASDAQ:AMZN). The following list of peers was used for the analysis that follows: Wal-Mart Stores, Inc. (NYSE:WMT), Google Inc. (NASDAQ:GOOG), eBay Inc. (NASDAQ:EBAY), Costco Wholesale Corporation (NASDAQ:COST), Mercado Libre Inc. (MELI), Barnes & Noble, Inc. (NYSE:BKS), Hot Topic Inc (NASDAQ:HOTT), Overstock.com, Inc. (NASDAQ:OSTK), and Apple Inc. (AAPL).
Amazon.com Inc. currently trades at a higher Price/Book ratio (15.6) than its peer median (3.5).
Valuation Drivers
Turnaround
The market expects faster earnings growth from AMZN-US than from its peers and also a turnaround in its current ROE.
Operations Diagnostic
Volume Driven
AMZN-US has relatively low net profit margins while its asset efficiency is relatively high.
Earnings Leverage
Revenues Focus
Changes in annual revenues (relative to peers) are better than the change in its earnings (relative to peers), implying the company is focused more on revenues.
Sustainability of Returns
Over the last five years, AMZN-US’s return on assets has declined from about median to less than the median among its peers suggesting that the company’s historical competitiveness in operations is slipping away.
Drivers of Margin
Commodity; High Cost
The company’s relatively low gross and pre-tax margins suggest a non-differentiated product portfolio and not much control on operating costs relative to peers.
Growth Expectations
Superior
Compared with the peers chosen, AMZN-US has had faster revenue growth in prior years and a current PE ratio that suggests faster growth in the future suggesting superior growth expectations.
Capital Investment Strategy
The company is likely overinvesting in a business with only median returns.
Leverage & Liquidity
Quick and Able
AMZN-US currently does not have any debt.
Share Price Performance
Relative outperformance last month is up from a median performance last year.
While AMZN-US’s change in share price of 17.8% for the last 12 months is in line with its peer median, its more recent 30-day share price performance of 9.5% is above the peer median. This suggests the company’s performance has improved more recently relative to peers.
Price/Book or P/B valuation is a function of the observed operating performance of the company as measured by ROE multiplied by the market’s current implied growth expectation as measured by the P/E. We define Valuation Premium as the difference between the Market Capitalization and Book Value of Equity, and as a proxy for the NPV of cash-flow associated to the Book Equity investment.
Based on the analysis of the relative contribution to the P/B valuation of “Operations ROE” vs. “Expectations P/E”, we quickly garner insight into peers comparative performance and the market’s assessment of their strategies – are they just “Harvesting” the current business pipeline or are investors betting on a strategic “Turnaround”?
AMZN-US has a Turnaround profile relative to its peers.
The market expects AMZN-US to grow faster than the median of its chosen peers (PE of 316.6 compared to peer median of 23.7) and to improve its current ROE of 4.9% which is below its peer median of 15.9%. Thus, the market seems to expect a turnaround in AMZN-US’s current performance. The company currently trades at a higher Price/Book ratio of 15.6 compared to its peer median of 3.5.
AMZN-US has maintained its Turnaround profile from the recent year-end.
AMZN-US’s ROE is its lowest relative to the last five years and compares to a high of 58.5% in 2007. Though its ROE decreased to 4.9% from 8.6% (in 2011), its peer median remained relatively stable during this period at 15.9%. Relative to peers, ROE fell 3.8 percentage points.
Looking at the last five year-ends, AMZN-US’s current PE of 316.6 has touched a new high and compares to a 2008 year-end low of 34.0. PE increased (relative to recent year-end 2011) for both the company (to 316.6 from 124.8) and the peer median (to 23.7 from 21.6). Combining both ROE and PE suggests that AMZN-US’s current PB (price/book) of 15.6 is greater than its average year-end PB of 14.8 over the last five year-ends.
Operations Diagnostic
AMZN-US has relatively low net profit margins while its asset efficiency is relatively high.
The company’s net profit margins have been relatively poor (currently 0.7% vs. peer median of 2.8%) while its asset efficiency is better than the median (asset turns of 2.8x compared to peer median of 2.1x). This suggests a volume driven operating model relative to its peers.
AMZN-US has moved to a Volume Driven from a relatively low net margin profile at the recent year-end.
AMZN-US’s net margin is its lowest relative to the last five years and compares to a high of 3.7% in 2009. Though its net margin decreased to 0.7% from 1.3% (in 2011), its peer median remained relatively stable during this period at 2.8%. Net margin fell 0.9 percentage points relative to peers.
AMZN-US’s asset turnover is its highest relative to the last five years and compares to a low of 2.1 in 2010. Though its asset turnover increased to 2.8 from 2.2 (in 2011), its peer median remained relatively stable during this period at 2.1. Overall, asset turnover and net margin trends suggest that AMZN-US’s ROA at 1.9% is its lowest relative to the last five years and compares to a high of 8.9% in 2007.
Earnings Leverage
AMZN-US seems to be more focused on revenues. You must log in to view details.
Sustainability of Returns
Relative to peers, recent returns have declined versus last five years. Log in for details.
Drivers of Margin
Relatively low margins suggest a non-differentiated product portfolio and not much control on operating costs.
The company’s comparatively low gross margin of 25.5% versus peer median of 32.8% suggests that it has a non-differentiated strategy or is in a pricing constrained position. In addition, AMZN-US’s bottom-line operating performance is below peer median (pre-tax margins of 1.2% compared to peer median 4.4%) suggesting relatively high operating costs.
AMZN-US has maintained its Commodity/High Cost profile from the recent year-end.
AMZN-US’s gross margin is its highest relative to the last five years and compares to a low of 22.3% in 2008. Though its gross margin increased to 25.5% from 22.4% (in 2011), its peer median remained relatively stable during this period at 32.8%. Gross margin rose 2.9 percentage points relative to peers.
AMZN-US’s pre-tax margin is its lowest relative to the last five years and compares to a high of 4.7% in 2009. Though its pre-tax margin decreased to 1.2% from 1.9% (in 2011), its peer median remained relatively stable during this period at 4.4%. Relative to peers, pre-tax margin fell 1.1 percentage points.
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