“How can Apple (AAPL), with $110 billion in the bank, annual sales of $140 billion and earnings that nearly double every year, be valued so much lower than Amazon (AMZN), which has $6 billion in the bank, sales of $50 billion and earnings that fell 35% last quarter?” Philip Elmer-DeWitt asks for Fortune.
“As of Friday, Amazon was selling for 184 times earnings and Apple for 13.8, a 13-to-1 gap that grew even wider in Monday’s trading,” P.E.D. reports. “This is a question that reader Jeff Forsberg has been asking for nearly a year… ‘This is getting hard to understand,’ Forsberg writes. ‘It’s almost as if Wall Street is pricing Amazon on the basis of Apple’s earnings performance. There’s more upside with Apple’s median price target than Amazon’s, and yet Apple’s P/E’s is compressed to a level that strains credibility. By comparison, there’s hardly any coil left in Amazon’s spring. What gives?'”
Check out the excellent chart in the full article here.
MacDailyNews Take: Compression.
[Thanks to MacDailyNews Reader “David E.” for the heads up.]
The market currently values Apple’s earnings growth at $0.00 – May 7, 2012
Amazon’s Kindle Fire shipments fizzle to anemic 4% market share – May 4, 2012
Target to stop selling Amazon’s Kindle, outfit stores with special Apple iPad displays – May 2, 2012
Simple answer. Apple sells the tools to produce and/or consume content, while Amazon sells the content itself. When you get a good quality Apple product, it lasts a long time, which is good for the product itself, but it also means that you get much fewer repeat purchases. Not that Apple customers are less loyal, but you buy one Apple computer, and you use it to buy 1,000 books on Amazon (or download 1,000 books to the Kindle app on your Mac. 😉 )
I’m not sure I agree… Apple’s iTunes store? A new phone annually for a good portion of people. At the price points, that’s pretty good turnover, no?
I use my Mac to download music, IOS Apps, books, movies, tv shows and software from Apple’s iTunes and App Stores.
Okay, you’ve got a point there. On the other hand, with the single song purchase model, you buy a song that’s 99 cents, and then you listen to it over and over again, so compared to a book on either Amazon or iBooks, it’s a lot smaller margin. As for the Amazon vs. iBooks debate, yes, it is true that iBooks are much higher quality than Kindle books, but as has been pointed out, there are still many books available for Kindle, but not iBooks. So that could be a factor too. And still, the fact that Kindle is available on many different platforms (including Mac), whereas iBooks is only available on iOS devices, so there’s more incentive for people to buy Kindle books for that reason, too. I suspect those are some of several factors at play here.
I use iBookstore for books, thanks. Not Amazon which runs whining to the DOJ when their eBook monopoly is threatened.
Me, too. I buy e-books from iBookstore exclusively.
I shop for content at Apple first, but iBookstore does not have many of the books I look for, so I end up buying Kindle books. I wish Apple would increase their offerings, specifically in non-fiction books and text books.
Don’t read many books then, do you.
There are many books not available on iBooks, and plenty of authors who only have part of their entire written work available there. If you imagine for one second that I’m going to pass on the work of a favourite author just because most of his books are only on the Kindle, then frankly you’re nuts.
Get over yourself.
Here’s why you may consider doing so. Amazon, if it gets a complete monopoly on ebooks, can potentially become the “gate keeper” for what gets published.
Think of that, a single company deciding what gets written and published. If that possible future does not frighten you, then I don’t know what else I could possibly say that would.
I think it’s also pretty awful that ebooks are being produced with DRM which means that they can’t be moved around freely, to different devices that we own.
Way to be a jerk!
That’s part of it.
Of course If Apple would like to sell a truckload of MAc Pros they could refresh the line. My wallet is waiting.
It would be nice if it were that “simple”. Even if it were true, ultimately a company’s worth is related to its profitability. Apple made 90X more profit than Amazon last quarter, and it is growing its profit faster. So what if you download 1000 books on Amazon, if they don’t make any money, how is that worth as much as one high-margin Mac?
Its simple. the anal — yet and wall street in general do not understand anything but business …. 40 years ago.
If you sell stuff for the cheapest price and move volume, that they understand. But make a great product that the world wants… well, that can not be. Unless you are a start-up. Apple just Thinks Different and so they do not understand.
That is why their predictions are so out of kilter with reality. But reality has a way of catching up with you (take gravity for example. ignore it at your own risk. 🙂 )
Just a thought,
sorry, early morning. anal –yet s/b anal – – yst. Darn spell checker. 🙁
So, you’re saying that Wall Street is comprised of a bunch of professionals that are unable to learn and adapt to how Apple’s product/financial model functions? I don’t think so. Are they really that backwards in their way of thinking? I can’t believe they are all of the same mind since many of them weren’t alive 40 years ago. Amazon is being looked at like a dot-com company and everyone knows what happened to the companies of the dot-com era.
Amazon is unusual in itself even if it isn’t being compared to Apple but the analysts understand Amazon extremely well and accept whatever goes on without raising an eyebrow. Well, I just can’t accept not thinking that Wall Street is being managed by a bunch of crooks that are trying to screw average investors. I know I can always go and buy some Amazon shares if I want to, but that company’s value honestly makes no sense to me so it’s my loss. There’s no way I can rationalize that Amazon is a better run company than Apple and Apple investors should be punished for owning it.
So you are saying it’s “crooks” rather than “incompetent boobs”.
I get where you are coming from, but I’d go with incompetence:
“Never attribute to malice that which can be explained by stupidity.”
(Robert J. Hanlon, and Robert. A Heinein)
Because the analyst has an enema up his wazoo and can’t calculate value.
Well, this is certainly the doing of a streamlined product line. There is enormous risk to Apple if the next iPhone turns out to have a technical problem, it would have significant impact on sales and income. I think that’s what people are seeing and why earnings are compressed, it has to do with the risk to existing earnings and growth.
Share prices will only increases as sales, income and product line expands due to risk of a narrow and streamlined product portfolio.
Not having a streamlined product line is certainly working out well for Sony now isn’t it?
Amazon is a vendor of over priced junk, and a pain in the butt company to do business with. A last resort company if you can’t find something you think you need anywhere else. Some thing is wrong with a system that ranks Amazon over Apple.
Its just means amazon is seriously overpriced.
I would pause to consider this may be politics. MS won the computing war, supposedly, years ago, and with it they garnered the allegience of the vast majority of businesses and rich people who worshipped them and HAtEd Steve Jobs. Those money people are old and they still don’t like Apple, and how could they possibly invest in AAPL, that would mean they were wrong all along!!! People, especially old people with mOney, rarely admit they are wrong. Just wait, they will die off, and then the next generation of rich kids that used Apple computers will have $$ to invest and AAPL will finally be valued fairly..
But Apple’s sales are record breaking every quarter so just because Apple sells hardware, doesn’t mean anything. Also Apple is a content provider as well with the iTunes store. Music, Video, and books. Apple has proven for the last 3 years that it has the sales in record breaking quarters every time. The stock should be at $800 a share by now if it was any other company. Apple is 17th on the fortune 500 for gods sake. Apple’s record and cash balance is way above any company in the world so why is the stock stagnating or compressing? I agree with this writing that it does not make any sense at all and I think there should be an investigation.
These two stocks each us about the true nature of Wall Street. Because of their actual performance AAPL should be much higher and AMZN should be much lower. However, emotions come into play and color people’s thinking. I don’t know why but there are people out there actively promoting Amazon as having a fantastic future and they are getting some people to go along. The P/E ratio is so higher because earnings are near zero. Apple does not have such a champion. Steve didn’t care much for the street or investors. So AAPL climbs the wall of worry as people fret it might collapse at any minute. You buy a stock for future earnings and, apparently, many people don’t trust Apple’s future earnings potential.
For me, I prefer this to AAPL being overhyped. I wish the P/E were a little higher, but steady growth is better than wild swings.
It’s inevitable kids. Apple will RISE to its real value while the mask will fall off Amazon and it will FALL to its real value.
So which of these two stocks would YOU rather own?