Amazon FCF Analysis: Notes from Agnostics

Introduction: Keeping it Simple
A Bankable Year: How Much “Free” is in Free Cash Flow?
The Lost Impact of Large Numbers: What does $26.666 Billion Mean?
Conclusion: The Munificence of Growth Focused Markets

Introduction: Keeping it Simple

A year ago Kailash wrote The Amazon Apocalypse Part I & Part 2 examining the growing disparity of implied expectations expressed in the market valuations ascribed to Amazon compared to all other retailers. The papers referenced a raft of media articles that made visceral use of words like “crushing…ravaging…[and] killing” when describing Amazon’s impact on old-fashioned retailers. Kailash’s anecdotal observation then was that “there may be a consensus that the rise of Amazon has not been great for its competitors.” We will provide a full update on that report later this month.

In perusing Amazon’s 10-K your author found himself dabbling in the firm’s footnotes. None of us at Kailash profess any expertise around the Amazon story.¹ Our interest in the organization resides merely in the equity’s stunning advance. Since the market trough on March 9, 2009 through the end of April 2019, Amazon has risen an astounding 3,085% vs. the S&P 500 and Russell 1000s’ 438% and 444% respective increases. With a market cap just shy of a trillion dollars and a long history of accepting negligible profits in search of top-line growth, Amazon cannot help but inspire wonder.

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Figure 1 below shows a mere six rows of data from Amazon’s 10-Ks. Kailash believes it is the first three rows that have captured the hearts and minds of investors. Since 2014 Amazon has grown sales 162%, swinging from negative net income to a $10bn profit while free cash flow exploded to $19.4bn or an 895% increase. These first three rows show seemingly incontrovertible evidence of fantastic incremental operating and cash margins accruing to a revenue juggernaut.

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ADDITIONAL READING

The topics discussed in this article are aimed at seasoned professionals, as such, we have included some extra reading for anyone seeking out more information related to the topics above.

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