“The race is on to become the first company with $1 trillion market capitalization. Two contenders for the crown are Apple and Amazon,” Peter Cohan writes for Forbes. “Since Apple has a mere $255 billion to go, it will beat Amazon to the crown by a year — getting there by 2019.”
“But Amazon stock — which has been rising at nearly 42% a year — will get you richer much faster than Apple,” Cohan writes. ” (I have no financial interest in the stocks mentioned here).”
“To its credit, Apple is the world’s most valuable company. Its market capitalization of $755 billion is indeed impressive. But that value rests on a foundation of relatively tepid growth,” Cohan writes. “Amazon lags Apple in profitability but its revenues rose at nearly three times Apple’s growth rate and its stock has appreciated far more swiftly. Amazon’s market capitalization is only $418 billion — but it came with faster growth.”
“Bezos’s investment in new capabilities for Amazon — expanding it from a maker of Internet-store front for selling books to a powerhouse in supply chain and logistics, cloud services, and content production gives me confidence that the company will keep growing much faster than Apple,” Cohan writes. “After all Tim Cook — who was hired as Steve Jobs’s supply chain master — has demonstrated an ability to squeeze a significant amount of profit from what is now the decade-old iPhone that Jobs created. But Apple has not been able to come up with a new source of sufficient revenue to offset the maturing of the smartphone market with its roughly 1,000 rivals.
Read more in the full article here.
MacDailyNews Take: “Apple has not been able to come up with a new source of sufficient revenue?”
Puleeze.
In its fiscal 2016 ended September 24th, Apple’s Services was the company’s second largest business unit, generating $24.3 billion, and growing at 22% year over year. In Q117, Services generated $7.172 billion for YOY growth of 18%.
In the last four quarters, Apple’s Services alone have generated revenue of $25.464 billion which, if it were a separate company would place it at #108 on the Fortune 500, just ahead of something called McDonald’s (2016 revenue of $25.413 billion).
Perspective. It’s wonderful thing… when you have it.
SEE ALSO:
It’s no longer all about the iPhone; Apple’s services revenue is growing at an impressive clip – March 15, 2017
Tim Cook’s Babe Ruth moment: Calling services biz ‘Fortune 100’ over a year in advance – July 27, 2016
Amazon with a P/E ratio of 181.16! Far too risky!
Indeed! What a foolish assertion! If you trust people like this to guide your investments, then you are pretty much gambling. The last time that I checked, Amazon generated very small profits relative to its revenues. That would fit with the P/E of 181 that Renagade posted. I don’t know how fast Amazon is growing (it would be interesting to know Amazon’s PEG), but it is unreasonable to expect that growth to continue unabated for any extended period.
With a P/E of 181, the price of Amazon stock is poised to swing wildly with little provocation.
Does anyone remember Enron? How about Worldcom?
With Apple, it is pretty clear how it earns its money and why its share price is valued as it is. I cannot say that about Amazon. It is a glorified delivery company, as far as I can see. I do not understand why its share price is at such a high multiple. Reminds me of the greatest way to make money on Wall Street — the Greater Fool theory. Buy whatever, and just sell it to a bigger fool than you… Do it repeatedly and you will earn a lot of money.
Me, I prefer investing in companies that make money the old fashioned way: by earning it.
Quandary = Wall St’s long-term Amazon “respect” in-spite of shoddy earnings/true profit. Maybe their grace period is moving into a time of true gains. After all, Jeff recently moved into richest 2nd place and he plays with rockets like Mr. Tesla.
Apple makes more net profit in one quarter than Amazon has made in its entire existence.
Race to the bottom near-zero margin business model is not sustainable and neither is Amazon’s growth. Simple example: AMZN net profit last quarter was $749 million. On revenue of 43.7 billion. To match Apple’s net profit of $9 billion, AMZN would need to increase its revenue TENFOLD, which is simply impossible.
And it’s worse than that – their profit was entirely from the web services side and the bulk of their revenue is from their loss-leading e-commerce sector. Selling 10x more goods is going to put them in a net loss no matter how well web services does.
In fact, AMZN’s single biggest way to increase net earnings would be to complete dispose of their e-commerce division altogether!
Amazon continues to have very thin profits due to constantly reinvesting in itself. It’s just paying off now. They also just bought out Souq.com, the Middle East’s Amazon.
The only reason Amazon has been able to get the market position it has is through loss-leading to keep competitors out of the market. That’s all well and fine, but the moment they have to price their products to fairly complete in the market they would immediately suffer.
Which is why they are trying so hard to make people live in their ecosystem with the Fire/Kindle/Prime troika. They need something else to convince people to stay.
What I can’t understand is how anyone on Wall St can still believe the “we’re investing for the future it will pay off someday” mantra after TWENTY TWO YEARS now. 22. And here’s how the profit margins have been for the most recent quarters: https://ycharts.com/companies/AMZN/profit_margin
Dec. 31, 2016 1.71%
Sept. 30, 2016 0.77%
June 30, 2016 2.82%
March 31, 2016 1.76%
Dec. 31, 2015 1.35%
Sept. 30, 2015 0.31%
June 30, 2015 0.40%
March 31, 2015 -0.25%
Dec. 31, 2014 0.73%
Sept. 30, 2014 -2.12%
June 30, 2014 -0.65%
March 31, 2014 0.55%
Dec. 31, 2013 0.94%
Sept. 30, 2013 -0.24%
June 30, 2013 -0.04%
March 31, 2013 0.51%
Dec. 31, 2012 0.46%
Sept. 30, 2012 -1.98%
June 30, 2012 0.05%
March 31, 2012 0.99%
Dec. 31, 2011 1.02%
Sept. 30, 2011 0.58%
June 30, 2011 1.93%
March 31, 2011 2.04%
Dec. 31, 2010 3.21%
Oh, I’m sure we’re right around the corner to massive profitability (roll eyes).
I leave it to the reader to compare that data to AAPL’s: https://ycharts.com/companies/AAPL/profit_margin
Since founding Amazon in 1994, Jeff Bezos has amassed a $75 billion personal fortune. During that time, the company has never paid a dividend. Investors are getting played, and while they have been richly rewarded by the “wait for it” Wall St pyramid scheme, when they run out of whatever they’ve been spiking everyone’s Kool-Aid™ with all these years, the investors left holding the bag are gonna feel a world of hurt.
Bezos is growing a company and Cook is milking a one trick pony.
I agree that some of Amazon’s products are loss-leaders but the majority are not. They simply seem that way if you look at it from a smaller retailer’s perspective. A loss-leader by definition means that the business is taking a loss (e.g. cost of goods > selling price of goods). Since Amazon buys in such large quantities they are able to price much lower than their competitors and still make a profit where others would be taking losses. “Fairly” pricing products is subjective and one definition could be selling a product at a small profit so the consumer can stretch their purchasing power.
Every company want’s sticky customers, how they go about it is part of their business plan. Apple does it by controlling everything and attempting to ensure the best user experience possible. Why do you fault Amazon for doing the same in their space?
I don’t think I said anything about being right around the corner to massive profitability. As long as Amazon continues to aggressively invest in itself we won’t see anything of the kind. On the other hand since you quote profit margins. Looking at the same time period you quoted in your reply above AMZN has gone from $180.00 (Dec.31, 2010) -> $749.87 (Dec. 30, 2016). Marketcap in the same period has grown from $80.8B -> $356.3B. AAPL in comparison has gone from (split adj.) $46.08 -> $115.82 and grown from $362.7B -> $674B. AMZN appears to me to be the better investment despite the single digit price margins you have shown. The investors ‘holding’ the bag are probably very happy contrary to your belief.
Marketcap data from macroaxis.com; stock price data from Yahoo finance.
I quote profit margins because they are a true measure of the company’s success. If AMZN could improve them by an order of magnitude, one might consider valuing the stock high. However, they have NEVER shown any indication they can do that – because they can’t.
You quoted back stock price and market cap which was the whole point of the original post – this is all simply the result of Wall St hype and Kool-Aid drinking that the company will “someday” be very profitable. Which I have demonstrated is not the case. Amazon will never have enough revenue, margin or return to justify their 181 P/E ratio. Never. They can grow neither their revenue nor market cap 10x from here – it is simply not possible. But even if they managed to do BOTH which would be required to earn that P/E, with that profit margin they will still have 1/10th of Apple’s earnings. Valuing AMZN at this level is patently absurd. A stock having an irrationally high value compared to its dismal profit performance dos not make it a better investment, sorry.
I admitted those who are in the game now have been very richly rewarded by the pyramid scheme. I also said very clearly that the investors who are holding the bag **when this merry-go-round stops** will indeed be very unhappy, indeed. I would short the living crap out of AMZN were it any other stock, but Bezos has a free pass on showing profit with the Wall St crowd and it would be foolish to swim against that delusional current. But someday, probably in the next two years, someone will make a mint shorting this stock, that’s for sure, and Jeff Bezos will have a good hard laugh, too.
I understand what you mean by profit margins as a true measure of a company’s success, but that tends to apply to companies that have passed the ‘growth’ stage. Amazon by all accounts is still in the growth stage, possibly the oldest company that could be said to still be there. As you also pointed out profit margins are thin and yet Amazon continues to get larger and more pervasive. It’s hard to say that’s not a ‘success’ after all these years. I believe what makes the stock high now more so than in the past is the fact that a huge portion of internet businesses today depend on Amazon to exist for their own businesses to survive. You probably noticed how far the effect of the recent AWS hiccup reached worldwide.
Admittedly Amazon may have started with Wall St. hype, but it’s hard to argue now with how successful they are in their area of retail and the level of vertical control they have over the manufacturer to customer pipe in both physical and electronic forms. As for a 10x multiple in market cap you realize if AMZN is successful in a 2x multiple they would have several 10s of billions over APPL right now. Personally, I feel stocks are valued not just by the physical value of the assets of a company, but also by the perception the public has of the company (good, bad, benefit to oneself and society) and how they feel the company is forward looking of its future by their actions and products/services they provide. Apple in my opinion seems to have so much potential but have focused so tightly on the iPhone/iOS products that it feels they run the risk of having all the eggs in one basket. Amazon on the other hand feels more grounded, for lack of a better word, and has a more varied portfolio of goods and services to offer both businesses and consumers.
I’m curious what about Amazon you feel could crash AMZN in 2 years time. Perhaps all the Fire brand products exploding?
“Amazon by all accounts is still in the growth stage”. That growth is NOT sustainable. If they had room to grow revenues 10-fold then yes, you could justify the P/E. Doubling at 2% margin does not.
Their 2016 revenue was $136B (which is amazing considering it was $75B a few years ago, absolutely), however, they have already picked all of the low-hanging fruit and on top of that there is no way *any* company can go to the $1.36T revenue that the current P/E would imply. And no way they could get the earnings, either.
When it becomes apparent in 2 years or so that the years of sustained double digit revenue growth are behind them, and that they have not made any headway on improving their supermarket-level margins, it will finally become apparent that AMZN is a mature low-margin business, albeit the largest one on earth. The stock will crash, but obviously the company will still be around. There’s nothing wrong with this the company except that it does not make money. Which is, of course, what the ultimate goal is if you’re a shareholder investor (as opposed to a trader).
That doesn’t mean AMZN is not successful. They’ve done many things. But turning an efficient profit is clearly NOT one of them. Even farther down the road, watch for an activist shareholder to demand they spin out the web services and logistics divisions as separate companies as it is clear those make far more money fulfilling orders and supplying infrastructure for other companies than they do selling stuff (at a loss) themselves.
BTW, Google/Alphabet won’t have that pressure because the poor morons holding that stock can never have a majority voting block even if 100% of them got together – Brin and Page etc. hold 64% of the voting rights men though they hold only 6% of the shares.
I understand Amazon’s growth is not sustainable in the long term, it was just one reason I was pointing out that profit margins are low. Due to how aggressive Amazon has been in investing in itself what is left over of their revenue is the resulting profit margin. Should Amazon taper that constant reinvesting lower it will result in much higher margins.
I think that is also part of their high valuation. The physical and digital assets they are generating through investing in themselves continues to accumulate and could be said to be the physical asset version of Apple’s cash pile. Like publishers have their books and media companies have their libraries, Amazon continues to expand its own assets. Apple on the other hand is content to simply act as broker for those same products and has no similar media assets to speak of. True they are trying with their new exclusive tv programs “Planet of the Apps” and “Vital Signs” with Dr. Dre. but that is simply a drop in the bucket and for a far smaller audience. Haven’t heard of much exclusive ebook content either.
Though growth for Amazon may not be sustainable, the addressable market for retail in general is magnitudes higher than all Apple products together so I believe that their growth will continue unabated for still years to come let alone 2. Take into consideration that Amazon holds only about 1-3% of the e-retail marketshare in China. Lots of room to grow there, especially now since they introduced Prime to that market in late Oct. last year. The Souq.com, Middle East’s largest e-retailer, acquisition this past week also places Amazon squarely in the UAE market. I doubt any activist investor will blink at what Mr. Bezos is doing these days, he’s done pretty much the impossible with his highly unconventional business plan.
Maybe Google/Alphabet not having activist investor pressure is a good thing seeing how Apple having such individuals is working out for them.
Bezos is the digital equivalent of the vendor at a Turkish bazaar. Perpetual middleman, skimming his vig. Consider his brilliant Fire tablet. Worse than copying like Samsung; he and his copy poorly with shameless intent to steer Fire users like cattle toward even more Amazon purchases.
Sounds like what Apple does with iOS Apps with their 30% cut and steering customers by making accessory products only compatible with their own HW.
Amazon P/E ratio is 181
Apple P/E ration is 18
How much is Apple’s cash reserver worth per share?
Yet Amazon is loved by wall street.
I don’t understand!?!?!?!?
If you use track athletes as an analogy, Apple is like the team’s Ace sprinter that practices occasionally vs Amazon who may not be as physically gifted but really putting in the practice time at the expense of practically everything else to gain ability. Who do you think the Coach (Wall street) is going to look at more favorably?
Apple to $250?
A realistic argument:
https://seekingalpha.com/article/4058988-Apple-To-250-A-Dividend-Perspective
Both AMZN and AAPL shares have become defacto government bonds, a wink-wink-nod place where institutional investors know they can park money and get most of it back at some point in the future. Is this rational? Of course not, but nothing involving Wall Street or GAAP/FASB has been rational since 2009. When this one blows up in their faces, it will be epic.
Sorry guys but there is no way Apple will be the the first company passing 1$trillion market cap. Its gonna be Aramco – the Saudi national oil company after 2017 IPO.
http://www.reuters.com/article/us-saudi-aramco-ipo-value-idUSKBN16D14Y
Interesting. I suppose if the IPO is successful, Apple will just have to settle for firs $1T for the tech sector instead.
Amazon’s web services are becoming the defacto place to store and serve data.
I think that will become the monopoly of the future, just like windoze was / is for M$.
It would be interesting to see how much money Amazon make from that (if any) though.