We considered that Amazon is doing aggressive business, paying transportation costs, the analyst considered that one of their advantages is free delivery aspects that allow to Amazon a continues growth in size with high growth rate of sales, in our calculations Amazon ratios of solvency and liquidity both are high, the analysts explain that Amazon has had an incredible run, their stock is up 50% YTD, and the average return was 42% over the last 5 years, some investor are skeptical of Amazon valuation, their principal sources of revenues are from services and products offered to consumers, in the analysis their considered that their revenues growth could be passive in the next years, because Amazon has not a clear vision or ability to convert more of its customers into prime members, for that it is critical to future growth.
They considered that Amazon is clearly subsidizing its international expansion using profits from North American operations. In their calculations considered that Amazon will increase their customers in 2% every year, their analysis of where Amazon could trade given sustained growth but a declining P/E multiple, Analyst assuming that Amazon will eventually return to a sane valuation for a high-growth tech company. If the P/E ratio geometrically declines by 15% per year, it would be at 35 in 2030. That seems reasonable for a high-growth but mature tech company that will at that point be 36 years old.
Analyst and us considered that Amazon could extend their products and services, they could become a platform for buying financial products or services in general, also Amazon is working on expanding its proprietary delivery network to include last mile delivery through Amazon Delivery Service Partners and Amazon Flex. With AWS, Amazon has a track record of monetizing solutions for its own internal problems. Amazon may very well launch a DHL competitor, funded and operated by local entrepreneurs.
They considered that The valuation of their shares is high because of the aggressive reinvestment of profits into the business.
Amazon’s next horizontal and vertical expansions. The next AWS. It is impossible to value this part of the asset, so I consider it a sweetener for an investment into a company that would make sense for a risk-seeking investors even without this option. Their opinion agree with ours because Amazon should extend their business and products and launch in different areas in order to get a health growth.
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