Why does Wall Street prefer Amazon’s losses to Apple’s massive profits?

“Amazon ‘loses’ money, Apple makes tons if it – yet Wall Street prefers Jeff Bezos’s losses to Tim Cook’s,” Jean-Louis Gassée writes for The Guardian. “Despite the company’s flat-lined profits, Wall Street loves Amazon and keeps sending its shares to new heights. Since its 1997 IP0, Amazon has gone from $23 to $369 a share. Amazon uses its e-commerce genius to prime the money pump. The company seduces customers through low prices, prompt delivery, an ever-expanding array of services and products, and exemplary customer attention.”

“Amazon’s daily revenue was about $200m ($17bn divided by 90 days). If it waits just 24 hours to pay its suppliers, the company has $200m to play with. If it delays payment for a month, that’s $6bn it can use to invest in developing the business. Delay an entire quarter … the numbers become dizzying,” Gassée writes. “Apple doesn’t need to play Amazon’s timing games. Product margins range from 20-25% for desktops and laptops (compared to HP’s 3-5%), to 65% or more for iPhones. With cash reserves reaching $147bn at the end of September 2013, Apple has had to buy shares back and pay dividends to bleed off the excess. Wall Street’s cautious regard for Apple seems ill-advised given Apple’s ability to generate cash in embarrassing amounts.”

“Audi, Tim Cook’s preferred brand, owns a small portion of the luxury car market (about 7.5%), but it constantly posts increasing profits – and shows no sign of slacking off. Similarly, today’s $21bn Mac business holds a mere 10% of the PC market, but Apple ‘uses’ that small share to command 45% of market profits,” Gassée writes. “The formula is no secret but, as with Amazon’s logistics and service, the payoff is in the implementation, how the chef combines the ingredients. It’s the ‘mere matter of implementation’ that eluded Steve Ballmer’s comprehension when he called the MacBook an Intel laptop with an Apple logo slapped on it. Why wouldn’t the Mac recipe also work for smartphones and tablets?”

Read more in the full article here.

MacDailyNews Take: As we explained back on October 23rd:

The well-heeled customer chooses Apple… These are the desirable customers. These are the customers that pay for substantive R&D. These are the customers that matter. This is why they get the world’s first and only 64-bit smartphone. This is, in fact, why they get the world’s modern smartphone in 2007, years before anyone else gets a serviceable knockoff.

These are the customers that pay for not only the best devices, but also for the best apps and services. This is why market share doesn’t matter for Apple and why Apple doesn’t really care about general market (unit) share. This is why the Mac lived while all the others’ PC businesses slowly died during Microsoft’s dreadful Dark Age of Personal Computing. This is why the Mac continues to thrive today. All of the smart and rich people have Macs. Intelligent developers understand this.

In each market in which it competes, Apple owns the only part of market that matters: Consumers with taste, the ability to discern value, and who possess disposable income and the will to spend it. Google, Samsung et al. can have all of the leftovers. They’re more trouble than they’re worth, which isn’t much, not even en masse.

If you have a billion users who settled for your product because it was part of a Buy One Get One freebie, how much content (music, movies, apps, books, etc.) are they going to buy and to how many paid services are they going to subscribe and how much are they worth to advertisers? Pretty much bupkis on all three counts.

We’d rather have the 400+ million (and rapidly growing) customers with the taste, the intelligence to recognize incredible value, and the money and the will to spend it. Wouldn’t you?

As long as you corner the market on the best customers, and there are enough of them to support a healthy business (very healthy in Apple’s case), market share doesn’t matter.

78 Comments

  1. Because Wall Street is purposely trying to destroy Apple with their lies. All the banksters at the corner of Wall and Broad are known for doing this. Would you trust the same group of people that crashed the economy back in that far off year of 2008? Don’t tell us you forgot now, as a conspiracy analyst, I can safely say that this is all on Wall Street.

      1. Why, thank you. I also really love your avatar picture. That icon really describes my feelings with our nation since about 2008. Once again, thanks for the complement, and your avatar is great as well.

  2. Because wall street is a self serving evil beast and like Armando Casablancas says, it destroyed and crashed the economy with not even an iota of conscience, or care, just to gain it’s greedy objectives.

    What’s amazing is that the sheeple forget and continue to follow this evil beast.

    1. Doesn’t take a genius: Wall Street thinks Amazon owns the book industry essentially forever and thinks Apple has no more than a 7-10 year guaranteed profitability, possibly less. Mac is mature, iPod is mature, iPad and iPhone and Mac mini are all mature. And the tech market is changing really really fast. If Apple misses the next shift it could be plowing into earth in 7-10. That’s why the hesitation. “All the switchers!” You say. Wall Street says “if they switched in they can switch out.”

      It’s actually a very easy to understand situation.

      1. Well, the press had a three and a half year track record to see that Obama wasn’t for ‘everyone’, and a MUCH longer track record to see that Romney was closer to being that type person.

  3. Because Wall Street believes in this fairytail that Amazon can turn on the profit spigot whenever they want to but they just choose to invest profits into the business. But wouldn’t a lot of this infrastructure spending be capitalized and depreciated over time?

    Also the argument that Amazon chooses to invest in the business over taking profits is a weak one. I mean what company doesn’t invest in R&D, infrastructure, innovation etc? The expectation is you do that AND make a profit. It’s not an either or situation.

    1. Apple appears to be deliberately trying to drive investors away by merely sitting on $146 billion in reserve cash and never doing a darn thing with most of it. OK, it spent billions on a respectable stock buyback but companies with far less money have done that much. Despite the buyback it didn’t do a darn thing for Apple’s share price.

      Seriously, can’t Apple find one damn company to acquire as an immediate additional revenue stream with just a small part of that cash? That makes no sense at all. Apple’s share price has come to a complete halt and Apple can’t figure out how to fix that while sitting on a mountain of cash. It’s just beyond my understanding. It actually appears as though they’ve just given up on growing the business any further.

      1. “Seriously, can’t Apple find one damn company to acquire as an immediate additional revenue stream with just a small part of that cash?”

        You mean, like Universal? Or MGM? Or both? Or even AT&T?

  4. Coz amazon can grow easily . Earning 0.0000001 this year , next year 0.00001 . That is 100 times GROWTH .

    That is the true reason . The stock market Is about future , how to measure future ? Growth .

    1. I don’t see the hate at Amazon. Yes, the Kindle Fire is an iPad rip-off but the original Kindle was a great device. In fact, I just ordered a paper white Kindle e-reader, not the Kindle Fire mind you, but the monochrome one. I used the original before, and I loved it.

  5. Cash is king. In this case, Apple simply needs to continue the stock buyback. I’m all for Apple reducing outstanding shares based on free cash flow from operations. I’m not in agreement with Ichan to leverage up Apple to make a huge buyback now.

    Shareholders will be richly rewarded in this scenario. In ten years they could be worth more than a share of Berkshire.

    1. I think you’re wrong about Apple’s shares becoming like Berkshire’s shares. Apple’s share price could easily fall faster than Microsoft’s did if investors refuse to buy the stock because of Apple’s arrogant attitude towards shareholders. Investors believe in Warren Buffet. No one believes in Tim Cook. Tim Cook is likely one of the most hated and disrespected CEOs in the world of tech.

      1. Ask the soon to be unemployed workers at 3 Heinz plants how they feel about Warren Buffet, since he now controls Heinz. Close to 2500 to be turfed in the next 12 months.

    2. Apple would need half a trillion $$ in order to buy back the company. While they may even have that much one day (they are almost one third of the way there), The question is whether that would really be necessary (or smart).

  6. I’m not well heeled, but that doesn’t mean I want to buy cheap products. I don’t necessarily like the connotation that using Apple products alludes to an elitist attitude that MDN likes to play up.

    I think the reason iPhone users buy more apps isn’t because they’re rich but because Apple makes it simple and beneficial to acquire apps. Apple’s curation process is likely to blame, not the income barrier that purportedly neuteres purchases.

    I think Apple does want market share. They don’t need it to be profitable (obviously) but it helps to keep their content fresh and focused.

    The dark ages of windows was also a dark age for Macs. Remember navigating one aisle of software at compUSA as opposed the the walmart size inventory in the PC software department.

    Google could easily usher in a new such era if Apple does continue to shed market share while their profits will mostly go unaffected.

    I’ll never leave Apple but I do enjoy having a prime app selection that I was never afforded as a Mac user in the decades past. And market share may eventually effect developers affinity for iOS.

    Apple doesn’t JUST want rich customers because they’re capable of getting less wealthy customers to continue to thrive in their Eco system because they do it so well. Market share isn’t irrelevant — in fact it’s only irrelevant when comparing profits. Let’s not forget other areas where it is a massive contributer: accessories, software, and accessibility to the standard.

    1. your command of the english language shows you to be well heeled, and your understanding seems to show you as intellegent as well, so you are exactly the person, regardless of income, who would understand the total value of an item and its place in the world, so cheers to you and all the people who have taste, discernment, and morals, regardless of income!

    1. What are you talking about? Apple always innovates and has new ideas for shameless copy machines to rip off. *coughSamsungcough* You must be one of those iOS 7 haters who hate it for whatever reason (too colorful, no skeumorphism, not grey enough, looks too much like Android, looks too much like Windows 8, does not have a built-in time machine, etc.) Give it up, please. Your Apple FUD is getting stale and boring.

      1. Your pandering is getting boring, and you’re in danger of becoming a blind believer.
        There are serious functionality problems with iOS 7 that come from hasty, poorly planned design. The Calendar app is one of the most horrific monstrosities I’ve ever used. Parroting buzzwords from MDN won’t change that.

        1. Your superlatives are even worse.

          “Most horrific monstrosities ”

          Yeah right, just like the holocaust and rawanda…

          Your self important comments are just as blind and shallow

            1. Oh… a One Star on my comment. I’m crushed. Considering that I’ve already worked at Adobe and Microsoft, I’m quite used to MDN readers hating everything that I do.

              The answer to the question of “Where how you been?” should now be obvious. 😉

            2. I don’t work at Amazon.com and I think iOS 7 sucks also. Quit acting like a fanboy. It’s embarrassing. IOS 7 is not a runaway bestseller. Don’t act like a lemming.

            3. One thing Amazon gets right – it’s one of our core values:\
              It’s called being “Vocally Self-Critical”. It’s part of our culture. And it means that when we see something that sucks, we say it sucks. Because that way we can improve it.
              You know who was the undisputed king of this principal at Apple?

              Yeah, his name was “Steve”.

              And we miss him.

        2. I very much enjoy my new 5S and my iPad Air. Although my fingerprint sensor no longer works, so I hope to look into that. So I had no choice but to start using iOS 7. I’m with you, I don’t like it. I don’t like the look and so far I have seen few things that I consider an improvement in efficiency. But that’s just me. I don’t play follow the leader. I’m just an honest guy. I don’t say that I like things just to be part of the cool crowd. That’s for fools. If everyone liked the same thing it would be a pretty boring world. I was able to change some things to make the appearance less pale. But I still don’t like it. And apparently a lot of people feel the same way. And you’re right, the calendar really, really sucks. Hopefully Apple will allow its customers the ability to change things going forward. I’m not a fan of iOS 7. But being an Apple guy I don’t have much choice right now.

          1. All the white space. All the crappy fonts. How could they make the Camera so (mostly) good and the camera roll so awful? I say “mostly” because they killed one feature that really made the camera special – the fact that the frame was taken when you let off the button, rather than when you pressed it. This allowed you to pre-press the button and let go of it when you were ready to shoot, enabling you to get hand-to-reach angles better, without having to stab blindly at the button. Now, when you hold the button down, it takes an endless succession of photos, as if it were the worst sports camera ever made.
            The Camera Roll is a disaster. The white space is stupid. It makes photos harder to see. If it didn’t then why would there be black space around a photo once you clicked on it? What the hell is a “Moment”?
            And Calendar… what a catastrophe. I used to be able to click on a day and get a quick list of that day’s events at the bottom, instantly. Now I have to wait for an animation which reveals the whole day’s timeline, and the event I’m looking for almost always requires me to scroll to get to it. If I don’t scroll through the whole day, I may miss an event. Setting the time and date are an exercise in frustration. I can’t see what day it is when I using the day scroll. Trying to zero in on it now requires a tennis game reminiscent of two-way Wheel of Fortune.
            Mostly, I’ve noticed that I just have to pay much more attention to the interface. This is because without stronger visual queues, I have to read more of the actual text to see where a button is and what it does. Buttons used rot be more iconic. now they look like Windows 3.1.
            If you think this is an improvement, that’s fine. You are an idiot and you are wrong.

            1. I agree, some of the white wash is a bit much. And I think the album display would be just as uncluttered with a black background.

              Also the scroll wheel you speak of it unruly and unpleasant looking.

              And what is with the volume notification squares?? Gross! It looks like a poorly ported PC game. They should make it Dots like they did with the service bar, which I love!

            2. In iOS 6 the ability to delete apps running in the background was much easier then the cumbersome method employed in iOS 7. They seem to have change things just to say they change things. I’m very disappointed with iOS 7. And the way beyond just the appearance.

  7. I’m no fan of Amazon (although I do buy stuff from them) and I do count myself a fan of Apple (and I do buy stuff from them as well) but how about this for a mind game. Apple sits on a massive pile of cash; Amazon does not. What’s the difference. It is not that Amazon doesn’t make lots and lots of money. They do. It’s because while Apple cannot seem to find ways to prudently invest all that cash to continue to grow their high profit business, Amazon is absolutely relentless in reinvesting every penny in doing things that will ultimately only increase their dominance.

    The fundamental problem for Apple whether the CEO is Steve or Tim is: what is the next breakthrough product? What is the next product that will, in 10 years, become more that 50% of the company like the iPhone has? I think the evidence is that there is no such product, that even for Steve, the iPhone was a product that will never be repeated. Apple will have breakthrough products in various areas. They will constantly improve what they currently make. And they will branch out into new services. But the product that will reproduce the iPhone just doesn’t exist.

    Amazon, by contrast, has never built a business based on one super, super product. Rather, they continue to reinvest to make their existing business more and more efficient at larger and larger scales. Along the way, they open up new lines – cloud services, for example. But mainly they grow by investing every penny in increased reach and efficiency.

    1. Robebo nails it. Amazon is king of online Internet sales and it is not a fad and there is nobody nipping at their heels to take that away.

      Apple has a very profitable business making a lot of great products that are somewhat faddish. Their position could be lost as quickly as they earned it. They have to continue to deliver or else. They are stuck in the rat race. And, if last year was any indication, their delivery times are getting slower. Furthermore, JD Powers shows Samsung beginning to edge Apple in satisfaction surveys.

      I love Apple and Amazon. Personally, I believe both stocks are overpriced — Amazon moreso than Apple.

  8. Jean-Louis Gasseé? The same guy who ran Be Inc. and created BeOS? Is he still butthurt that Apple didn’t buy Be Inc and use BeOS as the backbone of Mac OS? If Apple didn’t buy NeXT, then they wouldn’t have gotten Steve Jobs. BeOS was great, but it would not have been a suitable platform for Mac OS X. JLG needs to understand this.

  9. Amazon could implode very, very quickly. They have no cash cows and no cash in the bank. As I’ve quoted here before from Slate:

    “…That’s because Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers. The shareholders put up the equity, and instead of owning a claim on a steady stream of fat profits, they get a claim on a mighty engine of consumer surplus. Amazon sells things to people at prices that seem impossible because it actually is impossible to make money that way. And the competitive pressure of needing to square off against Amazon cuts profit margins at other companies, thus benefiting people who don’t even buy anything from Amazon.
    It’s a truly remarkable American success story. But if you own a competing firm, you should be terrified. Competition is always scary, but competition against a juggernaut that seems to have permission from its shareholders to not turn any profits is really frightening.”

  10. I like Amazon, I buy a lot of stuff from them (not their tech or kindle stuff), but the only way for them to make profit is to sell a huge amount more, or to make higher profit margins. I can’t see how they could increase their margins greatly without increasing costs – in which case I’ll go elsewhere, and I can’t see that their is a massive scope for them to increase sales volumes, at least not to the levels that their share price would seem to require.

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