Facebook is almost 97% ads and they guided for a midpoint of 7.5 (3-11% growth) That is HALF of what street wanted about 15%. 30 billion vs 26 billion last year. So by dropping stock to 25% the Street is saying they will eventually recover to faster than 7.5% growth but still less than 15%. My guess is 12.5% growth for the next 10 years. Or about 2.5% less growth per year for 10 years.
Now on to Amazon. We have to sum of all parts valuation to see what is driving profits.
AWS made 18.5 billion in profit with 40% growth rate. Assuming 1.1 peg ratio (very low) it should be at least worth 800 billion with 45 pe. Thats HALF of company using low assumptions. Their growth was 40% compared to street estimate of 36%. TEN percent beat and faster growth at least 1% can be assumed for next 5 years. Therefore 15% added to AWS value or about 7.5% of total company.
Now on to Advertising. They made 35 billion annualized or about 30% of facebook. Their growth was almost twice as fast as theirs, and they dont have the same IOS problems or controversy of their business. Therefore, its okay to assume its worth 37% of FB (FB worth 650 billion) or about 240 billion of company. (15% of total) Since they broke it out first time I think 10% increase in value is fine (93% of other revenue) or about 1.5% increase in total company.
Finally, Prime services. Netflix is worth 190 billion and has less revenue and less growth by a little bit. Prime video will spend less than netflix since you are paying for prime too. So 240 billion is fair for Prime or about 15% of company. They increase price by 15% for U.S, USA makes 70% of revenue or 10%
Assuming no more costs for more revenue. We can assume all the price increase is pure profit, and assuming 20% margin we can increase it 27%. 20/100 to 30/110 is from 20% to 27%. Therefore, even assuming some churn, (losing subs) we can increase value to 25% or about 4% of total market cap.
Add it all up and you get 13% or about what Amazon gained in market cap. Most of market cap is from those 3 things I mentioned. The ecommerce is the rest and that is very low margin so despite the drop in growth rate they made it up through increase value in their other more profitable business. 320 billion is the value I gave for it, which is 3x what Shopify does and they do 240 billion in GMV compared to Amazon 450 billion and Shopify is growing 50% per year, so pretty generous.
Again look at those 3 business and not the overall revenue which is dominated to low margin commerce business! I do not hold any shares of those companies mentioned, and I think FB is the better deal (overreaction) but this is what the street is believing.
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