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How Do You Value Amazon Heading Into 2020?

Amid calls for tech breakups, should investors adopt alternative approaches to valuation?

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With Amazon’s (AMZN) business model evolving the past several years and questions about breaking up large technology companies likely to persist through the 2020 election cycle (and probably longer), we believe it’s appropriate to revisit the longer-term assumptions behind our discounted cash flow analysis and introduce a sum-of-the-parts valuation for each of Amazon’s key business units. While we don’t see a breakup of the company as imminent, we believe this exercise can help investors gain greater confidence in an Amazon investment, which remains our top pick in online retail. Our analysis suggests that Amazon Web Services and Amazon Advertising are not receiving the credit they deserve from the market, and we still identify multiple paths to margin expansion for the company’s online and physical retail segments in the years to come, even against an uncertain global economic backdrop.

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R.J. Hottovy does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.