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 will never make a real profit, for two reasons:
a) Amazon is in a fundamentally shitty business: retail. It's retail on the Internet, but still retail. Amazon may successfully get into a real tech business, but they've been fairly unsuccessful at this so far--and there strategy continues to be to compete on price (AWS, Kindle etc.) which means no profits.
The real reason, though is:
b) Bezos is so focused on the long term that all profits will be immediately reinvested. Amazon is an ego thing for him and he wants it as big as possible at the limit. So Amazon will continue to grow but never make a profit. It's value is forever unmonetizable, even as it continues to own more physical stuff (warehouses, etc.).
Seems Amazon is taking the long view, and reinvesting their revenues. The opportunity for them is huge. Wall street doesnt care and would rather see quarterly profits. Good buying opportunity if you're interested in watching them take over everything in the next 5 years.
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?
What everybody can agree with is that AMZN stock price is massively overvalued.
Amazon is on low margin retail business. Amazons market cap is $475B. Assuming 10% ROI and 3% profit margin, Amazon must make $16 trillion in revenue some time in the future to justify the current price.
US retail sales are $5 trillion.
Total retail sales across the globe are $22 trillion.
Even if Amazon continues to grow at current pace, it runs out of markets to dominate before current stock price can be justified.
Bezos announced that he is unloading $1B per year. Smart man this Bezos guy.
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?
Stock values aren't only about earnings. Amazon continues to be a growth bet, and their low earnings are because their income has historically been reinvested productively to access new markets. A quick google shows their 2018 revenue was up 31% over 2017, which was up 31% over 2016, which was up 27% over 2015. You don't buy Amazon for a share of the amount they're making today, you buy them for a share of the much bigger company they'll be tomorrow.
Apple, on the other hand, sells boutique products into a rapidly commoditizing market, and is having a terrible time with growth right now (the numbers today show less than 1% revenue growth). So profit is the only reason to buy AAPL right now. And the profits? Down almost 13%.
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
Btw, they’re not a trillion dollar company. Yes their stock value landed them there, but the market is overvalued. Last I checked, Amazons dropped 25% from all time highs, Netflix is in pain. Apple is in bear territory. Your running away with sensationalist news headlines. Even if Amazon hits $1 trillion, it’s numbers on paper. They’re a growth company facing economic headwinds with rising interest rates. If shareholders owning amazon cashed out, they would collapse.
Bezos founded Amazon.com, Inc. in 1994. They have yet to produce an impressive profit margin (outside web services which isn't really relevant to this specific thread). How long sighted are we talking here?
The raw numbers are impressive, but they clearly aren't in the game of profit maximisation as we knew it back in the 80s. That is why nobody is really managing to compete with them.
I don't really see how they could maintain a monopoly and a margin at the same time. If they had actual profit margins then other companies would compete with them. The reason they look like a monopoly at the moment is because they have no margins. If they change that, competition will spring up like mushrooms.
Amazon is basically a web services provider by profit. All the other stuff they do is a mysterious distraction. If you want a company making for-profit decisions, look at how Apple runs itself.
Ok, let’s compare with Amazon then. They are also able to capture an enormous amount of value despite being in a very competitive industry (retail). They also are doing other things beyond retail (AWS).
It can be both a bubble and people can also be failing to make the right comparisons. Apple and Amazon have both been in bubble territory before. Eventually their valuations were justified.
Your analysis seems to ignore a fundamental number - the Price/Earnings ratio. Looking at a forward PE, which is a number that help drive stock prices, Apple is around 10 and Amazon over 100. No matter what you thing about Apple vs Android, etc, this fundamental valuation number is way out of whack for Amazon. BTW, I hold Amazon stock and think it's a great company.
"It has given a return to it's investors. Up 655% in the last 10 years and 17,000% since inception."
Only if you sold the stock at that price.
OK, Amazon is clearly not Pets.com. It has growing revenues and some profits.
But Amazon famously has a higher P/E than many other technology and Internet companies. This is only justified if Amazon has a clear path to greater profits and dividends than those other companies in its future. The article points out its not clear what this path for Amazon might look like.
This also makes me think of Facebook. As we waited for Facebook to go public, many speculated that Facebook was still in the stage of rapid growth, and it didn't matter that revenue and profits were low because eventually huge profits were guaranteed with so many users. Facebook is a profitable company, but since it's gone public, revenue and profits haven't grown the way people thought, and the stock is still below its IPO price.
My point is lots of users, lots of customers, and lots of revenue are necessary preconditions for a company to be worth investing in. But at some point, growing profits has to be a concern, too.
Maybe the best way I can phrase it: Do you want to be Apple or Amazon? Apple found a path to high profit margins, high growth, and a business generating lots of cash, and now they are both buying back stock and paying dividends to share holders. With Amazon, the profits, cash, and dividends seem always in the future, yet Amazon has usually had a higher P/E than Apple. Which do you think is the better model?
Not going to lie, the numbers for Amazon's stock suggest that the stock price is absurdly north of earnings. While I'd love to buy into Amazon (one of the best services online imo), it'll need to break into some major new markets to start "justifying" that price to me.
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.
I like Amazon, but with a PE of 90, I can't make myself buy them.
At some point in the future, when all their growth is behind them and they become a value investment as opposed to a speculative investment, they need to make me between 5% and 10% on my money if I buy the whole company. That's how I evaluate stocks. That means a PE of 10 to 20.
In what year do we believe that Amazon will be making 5X to 9X what it's making now, given it's current maturity? If that year is near, than, sure, perhaps buy here. I just can't imagine that kind of growth for such a large company.
That's how people justify investing in Amazon. But I don't know how they think Amazon can just stop reinvesting one day and make money. Every business line Amazon has is hyper competitive. Can Amazon actually raise prices in any of their businesses?
It's perhaps clear now, but pre-AWS, Amazon was a money losing company with no path to profitability. I went all in on amazon stock 5-6 years ago when the large tech company I worked for decided they were moving their large and very expensive cloud to amazon, and everyone else I knew at every tech company big and small was doing the same.
At the time, amazon stock was $400 a share - it wasn't reliably returning profits. AWS wasn't a significant proportion of their business. A lot of people still thought of amazon as a money losing retail company and a vestige of the original dot-com era. I told everyone I knew to invest in amazon because of AWS and it was very difficult to explain to people why it was going to beat the market. The fact that I found it difficult to convince people outside of tech that it was a good buy made me invest _more_ because I realized that 'the market' didn't fully understand the value of the company.
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.
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