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theSwift FCF Yield

The Swift FCF Yield: Amazon.com

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Amazon.com and FinViz chart

Amazon.com (NASDAQ: AMZN) will increase its annual Prime membership fee by 20% ($99-$119). This jump will start in 2019 for pre-existing subscribers.

There are more than 100 million Prime members and Amazon could quickly rake-in $2 billion by merely adjusting one feature of their ecosystem. Could is the operative word, as a cautious estimation would expect some subscribers to balk at the fee adjustment. However, if they are like most of us who use Prime video, music, Kindle benefits, etc.; Prime is a utility and we'll keep the lights on.

What might also flood cash into Amazon.com is the potential for an Amazon cryptocurrency. Imagine a Primecoin and one of the largest markets accepting its own currency. A recent newswire revealed that the company has moved into blockchain technology: "The cloud computing giant will team with a new start-up launching Tuesday called Kaleido, which was born out of leading blockchain incubator known as Consensys. The company is aiming to give AWS customers an "easy button" to get into the same technology that underpins bitcoin."

Blockchain was originally created for Bitcoin; the forerunner of cryptocurrency. However, blockchain methods are valuable to more than currency as noted by Invesopedia:

"...it is possible to digitize, code and insert practically any document into the blockchain. Doing so creates an indelible record that cannot be changed; furthermore, the record’s authenticity can be verified by the entire community using the blockchain instead of a single centralized authority.

Financial Visualizations (FinViz) Screening

FANG is a popular acronym for Facebook (NYSE: FB), Amazon, Netflix (NASDAQ: NFLX) and Google/Alphabet, Inc. (NYSE: GOOG, GOOGL) stocks. Another stock of worthy comparison would be Alibaba Group Holdings (NYSE: BABA), who has a large online marketplace and is a comparative to Amazon based out of China. This lends to a modification of the gang; FAANG.

FinViz does not tabulate the FCF Yield, but instead uses a metric called Price to Free Cash Flow or P/FCF. The FCF is likely taken from trailing twelve months (TTM) of data. The following is a quick comparison of P/FCF for the aforementioned taken FAANG stocks.

  1. Alibaba Group Holdings ....... 25.66
  2. Facebook ................................ 27.81
  3. Google/Alphabet ................... 34.96
  4. Amazon.com ......................... 152.19
  5. Netflix...................................... negative

Alibaba shows to have the better value with 25.66 P/FCF. Two others are in similar standing. At no surprise is the larger disparity for Amazon's number and that Netflix remains negative during its extreme growth-expenditure phase.

The Swift Free Cash Flow (FCF) Yield

The past quarter/3mo mark for Amazon.com showed an operating cash flow (OCF) of $1,791m and a capital expense (CapEx) of $3,098m. This left the company with negative FCF. For the trailing twelve months (TTM) the FCF was positive: an OCF of $18,194m and a CapEx of $12,905m. Although the company can have quarters of excessive CapEx or low OCF, expect one time events such as $2b in Prime membership revenue to rescue annual/TTM cash flow.

When the TTM FCF is compared to the market capital for a yield we arrive at a low of 0.69%. Not ideal for value investors, but this stock performance has never followed fundamentals anyway.

Amazon cash flow chart

Free Cash Flow is obtained by taking the value of the company's operating cash flow and subtracting from it the value of capital expenses. The yield is then formulated by dividing the result by either the market capital or enterprise value.

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Disclosure: I/we have no positions in the FAANG stocks, and no plans to initiate any positions within the next 72 hours.

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