Amazon wasn't the tiny startup you are making it out to be. In fact its market cap was larger than Apple's through the late 90s to mid 2000s. Apple has seen sustained but slowing growth since ~2008, while Amazon has absolutely exploded in the last 3-5 years. Here's a 10-year stock chart for comparison: https://i.imgur.com/PKLfYbG.png
What's the thought on Amazon stock price? Is their dominance of the web built in to their price or does it have room for significant growth in the next 5-10 years?
Amazon has benefited from high price/earning ratios for decades; even the growth-adjusted PEG version has been aggressive.
Interesting comparison made by Horace Dediu: “Netflix, Apple and Microsoft all have similar P/E ratios. (25-26). Meta and Google have collapsed (9 and 18.5 respectively.) Amazon is holding 100.”
Right, but Amazon is in a heavy infrastructure, heavy competition, low margin business. And their margins are small and getting smaller. 2% or so IIRC. They're less poised for explosive growth than Apple. On the other hand, they're here for the long haul.
Apple is spending a lot on infrastructure, but they're in a lower competition, high margin business. 38% margin IIRC. (yes, there's competition. But Amazon's competition is anyone selling anything, and Apple's is anyone who's managed to make a good smartphone.) The market hasn't been expecting Apple to grow for years now based on PE, they've been under 20 since the 2008 crash and growing their earnings like crazy. Their PE at the low point was 11ish, and now it's 14ish, less than the historical SP500 valuation.
For Comparison's sake, last quarter, Apple earned 6.8 billion. Amazon's net sales were 9.9 billion. Pretty soon, I'd expect Apple's profits to be bigger than Amazon's sales.
Something's not rational here. Might be me. Might be the market.
You can justify Apple's valuation through cash flow. You can't do it with Amazon. However it has always traded at a high valuation. Lets suppose it becomes the size of walmart which close ~500 bil in revenue. On the retail end their margins aren't really any better. So that is ~300 billion dollar business. That would mean AWS + prime video/music + amazon ads are worth 700 billions?
Amazon sells at a much much higher premium than Alphabet and Apple. If their growth ever begins to falter they won't be such a hot stock. Amazon has an amazing ability to pinch pennies and beat estimates every time. But with Microsoft and Google pushing on their cloud margins, I wonder how long that will last. They are the enemy of a lot of people. Google, Microsoft and Walmart to name a few. Not saying Amazon is doomed, just think people may be a bit over optimistic in thinking they will not hit road blocks going forward.
While I think Amazon could potentially grow their revenues 5x, I don't think it makes a lot of sense to own something that has to grow 500% to be fairly valued. To me that shows just how absurd their current valuation is. If I have a company grow 5x I'd like to think I'll make some money. In this scenario though, it just becomes fairly valued at that point.
Frankly, I'd love to own some Amazon stock. I think it's an amazing company with lots of potential. I just can't justify paying the current valuation. I'll probably regret it someday, but for now I'll stick with Apple and their 7 pe. Even if they lose all growth its worth much more than this. It's priced as if they are going out of business right now. I'd pay this much for either their iPhone or iPad business, not to mention having both, Mac, iPod, and anything new they come up with. They sold > 75 million devices last quarter. Doesn't exactly seem like a dying business to me.
Amazon is also the apotheosis of the growth model tech companies build on. I was working in finance in the early 2010s, and it was then fashionable for analysts to point out that Amazon's classic profitability metrics were flashing red.
However, the Amazon model (and to a lesser extent the Uber model, etc.) was to continue penetration pricing as well as plowing every dime made over costs into growth. It made the company look overvalued but the share price was in retrospect justified.
Amazon's stock is expensive, however markets - investors - do not price stocks based on past results typically. Stocks are priced largely on future expectations. This has been particularly true in the case of Amazon for a long time.
They'll have near ~$30 billion in profit within the next four to five years, which will bring their PE down to a high, but not ungodly, 30x.
AWS is worth $300-$350 billion now. Very soon it will soon be larger than Oracle and it's growing extremely fast for a large business (a high multiple would be granted). Their ad business is worth $100-$150 billion. In the next four to five years, those two businesses together will be worth as much as the entire company is today. That's a big part of what investors are betting on, along with the expectation that Amazon is going to continue to find new profit centers.
Sure, you might say, why is Amazon priced for earnings four or five years out? Well, that's the standard practice of pulling future returns forward. Almost always happens with growth companies, inevitably leads to a stagnation period. Amazon will continue to grow into their market cap and their annual returns will drift downward.
Amazon has a $90B market cap. Google's is $173B. Google can't afford it without taking on LOTS of debt, which ain't going to happen (note that neither company currently has any significant debt).
Amazon is $59B. (http://www.google.com/finance?client=ob&q=NASDAQ:AMZN) Amazon's user base is probably comparable to Facebook, and they're monetarizing the hell out of it. How is Facebook supposed to almost double that?
Apple, Microsoft, Meta priced for modest growth.
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