Comparing Amazon to other High Fliers
For years now, Amazon has been almost impossible to try to value using many traditional measures. Earnings, in addition to being razor-thin, have been inconsistent. Amazon doesn’t pay a dividend. Free Cash Flow was nearly zero last year.
But this is pretty typical for many new(er) tech companies. They reinvest heavily (if not through CapEx, then through operating costs) to ensure that they gain and/or maintain market share. This causes fluctuations with earnings and cash flows.
Yet, one metric that Amazon has gained consistency in over the past few years is Operating Cash Flow. This value doesn’t necessarily translate directly to earnings available to shareholders (like net income, dividends, or free cash flow), but I still think that it’s a useful number - useful enough for a rough valuation, anyway.
Operating Cash Flow hit about $5.5B last year, up from $4.2B the year before. At a Market Cap of about $155B, that yields a Price-to-TTM Operating Cash Flow of 28. Considering Amazon has about $7.5B in excess cash, the EV-to-TTM OCF ratio is closer to 27.
Is that low? Is that high? Here are a couple other “high flier” companies and their respective Price-to-Operating Cash Flow values (excess cash not backed out):
Gilead Science: 33.8
3D systems: 244
Compared to these companies, Amazon isn’t such a high flier. One could argue it’s actually on the cusp of just being a “big tech” company with a rich valuation. After all, Google’s P/OCF ratio is 20 – a bit lower compared to Amazon’s 28, but not ridiculously far off. (Per The Motley Fool, Amazon’s 5 year Rev growth rate is 32.5% compared to Google’s 24%.)
This obviously isn’t a list of peer companies, but it is a list of other popular, high-multiple companies – the type of company Amazon is commonly considered. But based on at least one metric (OCF), Amazon distinguishes itself by being much cheaper.
In terms of revenue, Amazon holds a larger #1 edge in its respective industry than most other #1 players. And we’re talking about a BIG industry. I think Wal-Mart is the #2 online retailer in US, and Amazon’s retail sales are something like 10x higher than Wal-Mart. That’s huge.
By no means am I trying to say that Amazon is some value stock now (I’ve only highlighted one metric, after all). And for the sake of not trying to make this an all-out Amazon pitch, I’ll stop here. I just thought I’d shed some light on Amazon’s status as a “high flier.”