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Corporate Finance University of Arkansas FINN 51103 MBA · 2025 Team Project

Amazon
Financial
Analysis

WACC · EVA · Divisional Valuation · Strategic Recommendations

4
Team Members
3
Divisions Analyzed
8.60%
Company-Wide WACC
$236B
Market Value EVA
19
Page Analysis
The Team

Collaborators

Shikhar Shrestha
Brandon Wallace
Jathin Bokkisam
Soumen Patel

The Challenge

Amazon operates three structurally different business segments — U.S. retail, international retail, and AWS — each with distinct risk profiles, cost structures, and growth trajectories. A single company-wide cost of capital obscures where Amazon actually creates and destroys value. The challenge was to isolate each division's true economic performance and surface the strategic implications hidden behind consolidated financials.

The Approach

Computed both a company-wide WACC (8.60%) and segment-specific WACCs using comparable public companies for each division — Walmart & eBay for U.S. retail, regional risk-adjusted rates for international markets, and Equinix & DigitalOcean for AWS. Applied Economic Value Added (EVA) analysis at the company and divisional level to measure true value creation, then benchmarked stock performance against Walmart and Alibaba to contextualize the results with strategic recommendations.

Cost of Capital

WACC Analysis

Divisional WACCs computed using comparable-company betas — isolating the risk profile of each segment rather than applying a blended company-wide rate.

Company-Wide WACC

8.60%
U.S. National
7.47%
Comps: Walmart · eBay
International
9.50%
Regional risk adjustments: Germany, UK, Japan & other markets
AWS
9.21%
Comps: Equinix · DigitalOcean
Weighted average of divisional WACCs: 8.22% — a 0.38% difference from the top-down company-wide figure, validating the accuracy of the divisional methodology.
Value Creation

Economic Value Added (EVA)

EVA measures whether a business generates returns above its cost of capital — the true test of value creation beyond reported earnings.

Company-Wide EVA

Positive
Book Value EVA
+$13.4B
Amazon generates positive economic profit on a book-value basis — returns exceed the weighted cost of capital across the consolidated business.
Market Value EVA
+$236B
Market participants price in significant future value creation, reflecting confidence in AWS's growth trajectory and Amazon's long-term competitive position.

Divisional EVA

Where Value Is Created vs. Destroyed
AWS
+$24.1B
Primary value driver — high margins, scalability, and structural competitive advantage drive returns well above cost of capital.
U.S. National
−$1.8B
Negative EVA driven by narrow retail margins and high logistics costs — scale has not yet translated to value creation.
International
−$7.1B
Largest value detractor — expansion costs, higher country risk premiums, and thin margins make international the most capital-intensive drag on returns.
AWS subsidizes the retail segments. Without AWS's $24.1B EVA, the consolidated business would show significant net value destruction.
Market Performance

Stock Performance (2022 – Present)

Benchmarked Amazon against Walmart (domestic retail peer) and Alibaba (international retail peer) alongside the Nasdaq Composite.

WMT
+76.86%
Walmart · Outperformer
NDX
+21.98%
Nasdaq Composite · Benchmark
AMZN
+19.69%
Amazon · Near-Index Returns
Amazon underperformed Walmart by more than 57 percentage points over the analysis period despite significantly higher revenue growth, reinforcing the EVA finding that growth alone does not drive shareholder value — returns on invested capital relative to cost of capital do. Amazon outperformed Alibaba on the international side, reflecting superior execution despite the negative EVA in that segment.
Conclusions

Strategic Recommendations

Three actionable recommendations derived from the WACC and EVA analysis — focused on closing the gap between Amazon's growth narrative and actual economic value creation.

01
Enhance Retail Efficiency — Shift from Scale to Profitability
  • Optimize logistics and cost structures to close the margin gap that drives negative EVA in U.S. retail.
  • Leverage automation and AI to reduce fulfillment costs without sacrificing delivery speed.
  • Prioritize unit economics over GMV growth — retail scale has not generated above-cost-of-capital returns.
02
Realign Capital Allocation — Prioritize Value-Creating Segments
  • Accelerate capital deployment into AWS, advertising, and Prime — the segments generating positive EVA.
  • Reduce marginal investment in low-return retail expansion until unit economics improve.
  • Use divisional WACC as a capital allocation hurdle rate, not the blended company-wide rate.
03
Reassess International Footprint — Concentrate on Profitable Markets
  • Evaluate underperforming international markets with a value-creation lens, not market-share ambition.
  • Reduce exposure to regions where country risk premiums and thin margins produce deeply negative EVA.
  • Reallocate freed international capital to AWS international expansion where returns are substantially higher.
Deliverables

Project Documents

AMZN Financial Analysis

PDF · 19 Pages · FINN 51103 · University of Arkansas

Amazon Q4 2024 Earnings Release

PDF · 13 Pages · Official Source Material · Feb 2025
Toolkit

Methods & Tools

Financial Analysis

WACC Economic Value Added (EVA) Divisional Valuation Comparable Company Analysis Country Risk Premium

Data Sources

Amazon 10-K Q4 2024 Earnings Release MarketWatch Yahoo Finance Damodaran Risk Premiums

Skills Applied

Financial Modeling Strategic Analysis Capital Allocation Segment Benchmarking Executive Presentation