Amazon Inc. & McKinsey Valuation Framework Term Paper

Pages: 15 (4483 words)  ·  Style: APA  ·  Bibliography Sources: 16  ·  File: .docx  ·  Level: College Senior  ·  Topic: Business  ·  Written: February 28, 2019

SAMPLE EXCERPT . . .
In the case of Amazon, the corporation provides the end consumer with retailing services and cloud computing services. Amazon is the largest online retailer in the world and the biggest one in terms of market capitalization. Whereas the core business model of the company is centered on its online store, they also unveiled physical stores, which brought in a reported revenue amount of more than $5 billion in 2017 (Desjardins, 2017). Subscription services through Amazon Prime also play a key role in the general business model of Amazon, owing to the reason that it provides content to consumers prompting them to spend more and become more loyal to the company. Lastly, there is AWS, where Amazon is a global leader and generates high margins. Furthermore, Amazon provides consumers with advertisement services. In overall, the company measures its success levels through a consumer experience obsession, decreasing prices, stable tech infrastructure and free cash flow generation (Desjardins, 2017).

 

2016 Revenue U.S Billions

Amazon Web Services

12.20

Retail third-party sellers

23

Retail products

91.4

Amazon prime and other subscriptions

6.4

Other (includes ad services and co-branded credit card agreements)

3

136.00

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Term Paper on Amazon Inc. & McKinsey Valuation Framework Assignment

Hastening cloud adoption will drive growth in the public cloud services market. It is anticipated that the market will double in revenue by the year 2021 surpassing the $300 billion mark with progressively more companies embracing the cloud movement. Bearing this in mind, it is projected that the global spending on public cloud computing will be experiencing a compounded annual growth of 20 percent in the next 5 years (Market Watch, 2018). Based on these figures, the growth of the Amazon Web Services surpasses the growth of the cloud market in its entirety, and this situation is not expected to change in the forthcoming decade. According to Seeking Alpha (2017), the revenue for Amazon Web Services might get to $100 billion, showing a compounded annual growth rate of 24 percent.

Amazon Web Services

Revenue (million U.S Dollars)

2016

$12,219.00

2017

$17,459.00

2018

$23,395.06

2019

$30,273.21

2020

$38,023.15

2021

$46,654.40

2022

$56,125.25

2023

$66,452.29

2024

$77,682.73

2025

$89,801.24

2026

$102,732.61

Another key revenue driver for Amazon comes from the retail services. In accordance to projections undertaken by Seeking Alpha (2017), the retail e-commerce sales in the United States are expected to grow at a compounded annual growth rate of not greater than 5.7 percent in the forthcoming 10 years. In the past four years or so, the average growth rate of the company’s sales in the North American region has been surpassing the growth rate of e-commerce sales in the United States almost twofold. Making the supposition that Amazon as a company will probably continue its aggressive business policy targeted at dominating the market share, I forecast that the corporation’s revenue in North America will be experiencing a growth of 11 percent compounded annually for the forthcoming 10 years.

Retail e-commerce sales in United States

Billions of Dollars

2015

294.50

2016

322.20

2017

358.70

2018

389.40

2019

425.80

2020

459.20

2021

485.30

2022

505.20

2023

520.40

2024

535.00

2025

547.00

2026

546.00

2027

558.10

Different from the United States market, the international e-commerce market is presently at the stage of exponential growth and therefore it is approximated that the growth rate will get to the 18 percent mark in the next 7 years.

Retail e-commerce sales worldwide

$ Billions

2016

$ 1,859.00

2017

$ 2,290.00

2018

$ 2,274.00

2019

$ 2,753.81

2020

$ 3,282.55

2021

$ 3,856.99

2022

$ 4,458.68

2023

$ 5,114.11

2024

$ 5,809.63

2025

$ 6,547.45

2026

$ 7,333.14

2027

$ 8,213.12

Nonetheless, as pointed out by Koller, Goedhart, and Wessels (2010), when valuating high-growth companies, it is imperative to take into consideration the economic situations. Bearing in mind that in the international market Amazon will be rivaling with other major players such as Alibaba in the Chinese market, I project that the sales growth rate of Amazon’s sales ought to be equivalent to the growth rate of the market as a whole. As a result, my projections are that the compounded annual growth rate of the global segment will be 16.5 percent.

Amazon Revenue International

$ millions

2016

$43,984.00

2017

$54,000.00

2018

$63,592.00

2019

$75,801.66

2020

$89,673.37

2021

$105,276.53

2022

$122,647.16

2023

$141,780.12

2024

$162,054.68

2025

$184,256.17

2026

$208,025.21

By combining these three different financial projections, we obtain a… [END OF PREVIEW] . . . READ MORE

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