Perform a strategic analysis of Amazon’s four businesses to determine Amazon’s market position in each segment and fill out the chart below (dominant or not dominant).
eRetailing and Retail Hardware Media and Content Amazon Web Services (Cloud)
Market position ? ? ? ?
Barriers to entry Low Medium Low Medium
Based on your observations, answer the following questions.
Hint: Start by building an industry map. For each of the four segments above, ask yourself – which activities Amazon is performing and who are its main competitors for these activities? Then, identify the segments where Amazon can enjoy economies of scale and/or any source of customer captivity
Question 1 (select one)
What is the market position on the eRetailing segment of Amazon?
• • Dominant
• • Not dominant
• • Dominant in infrastructure as a service (IaaS)
• • Dominant in platform as a service (PaaS)
Question 2 (select one)
What is the market position on the Hardware segment of Amazon?
• • Dominant
• • Not dominant
• • Dominant in infrastructure as a service (IaaS)
• • Dominant in platform as a service (PaaS)
Question 3 (select one)
What is the market position on the Media and Content segment of Amazon?
• • Dominant
• • Not dominant
• • Dominant in infrastructure as a service (IaaS)
• • Dominant in platform as a service (PaaS)
Question 4 (select one)
What is the market position on the Cloud Services segment of Amazon?
• • Dominant
• • Not dominant
• • Dominant in infrastructure as a service (IaaS)
• • Dominant in platform as a service (PaaS)
Instructions
Next, we are going to determine Amazon’s asset value. Before we begin diving into the numbers, leaf through the annual report look at its balance sheet, take a step back, and think about what adjustments you are going to have to make in your analysis. Additionally, what missing intangibles are we going to have to incorporate into our analysis? Based on your insights, answer the following questions.
Hint: Think about the adjustments you have learned about so far. Which of these need to be applied to Amazon? Remember, Amazon is a technology company. Think about why that is important and what additional assets we need to account for in our analysis. Also, think about the cost of technology. Has it been increasing or decreasing over the years? How does that factor into our analysis?
Question 5 (select one)
Which of the following items should be adjusted in the balance sheet before calculating asset value for Amazon? Select all that apply.
• • Fixed assets (PP&E)
• • Inventory
• • Goodwill
• • Current assets
Question 6 (select one)
Which of the following items are missing intangibles which should be incorporated into the asset value computation? Select all that apply.
• • Contracts and licenses
• • Brand
• • Workforce
• • Product portfolio
Instructions
Use the adjustments and the missing intangibles that we have computed so far to compute Amazon’s asset value of equity. Here is Amazon’s balance sheet for 2016:
Values in millions of $US
Hint: We made the following adjustments/additions to the balance sheet:
1 Current assets: $0.2 billion
2 Property, plant & equipment: $3.2 billion
Missing intangibles: $41.0 billion
Question 7 (select one)
Compute Amazon’s asset value of equity.
• • $50 billion
• • $55 billion
• • $60 billion
• • $65 billion
Exercise 6.2 – Compute Amazon’s EPV of Operating Business and Equity
Instructions
Compute Amazon’s earnings power value of operating business and earnings power value of equity. Here is Amazon’s balance sheet for 2016:
Values in millions of $US
Hint: Here are a few values which you should consider in your calculation:
• Net sales: $136 billion
• Average margin this period: about 3-5%, but historically retailers have sustainable operating margins of about 8%
• Excess depreciation: $3 billion
• Growth expenses (marketing): $1 billion
• Tax rate: 33%
Weighted average cost of capital (WACC): 10%
Question 8 (select one)
What is Amazon’s earnings power value (EPV) of operating business?
• • $100 billion
• • $112 billion
• • $94 billion
• • $98 billion
Question 9 (select one)
What is Amazon’s earnings power value (EPV) of equity?
• • $100 billion
• • $112 billion
• • $94 billion
• • $98 billion
