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Why does Apple (AAPL) have a forward P/E of 10 while Amazon (AMZN) has a forward P/E of 100? The...

Why does Apple (AAPL) have a forward P/E of 10 while Amazon (AMZN) has a forward P/E of 100? The reason, as Barron's points out, is "the perception of absolute control at Amazon." Amazon is a company that could generate billions more in annual profits if it didn't invest at a breakneck pace on new warehouses, streaming rights, subsidized hardware, and much else. Thus, Amazon bulls are content to focus on its share gains and healthy gross margin. But if Jeff Bezos plans to put a lid on spending, he isn't tipping his hand.
Comments (69)
  • Windsun33
    , contributor
    Comments (4222) | Send Message
     
    I think there is a feeling out there that (AAPL) is near topping out on it's fast growth over the past decades, while (AMZN) is just getting started.in it's World Domination.

     

    Amazon has multiple revenue and sales streams, and is getting more all the time, and it not dependent on any one trend or product line.
    27 Oct 2012, 03:14 PM Reply Like
  • bailinnumberguy
    , contributor
    Comments (1090) | Send Message
     
    Amazon has just been getting started in its world domination for a decade already. The company simply doesn't make any money and eventually investors will realize this.
    28 Oct 2012, 10:55 AM Reply Like
  • 215304
    , contributor
    Comments (595) | Send Message
     
    Total bull. Amazon isn't making money because it can't. For Amazon to make money it would have to raise prices, if it raises prices it loses customers and revenues. Amazon is locked in a low margin cut throat business that will always be a low margin cut throat business. Amazon's revenues have increased five fold in the last 7 years while its margins and profits have diminished significantly. The "investing for the future mantra" is Bezos bizarro talk. Why are other retailers and tech companies able to "invest for the future" and grow earnings simultaneously but Amazon can't? Why did WalMart, in it's heavy investment and growth phase, never lose money and continue to show earnings growth while Amazon could not? Same with Target, Apple, and scores of other companies. Amazon's earnings have declined year over year 7 quarters in a row with actual operating losses in the last 2 quarters. This holiday quarter will mark an 8th quarter in a row of year over year earnings declines and will show a sizable decline in revenue growth as well-that will burst the Amazon/Bezos bubble once and for all.
    27 Oct 2012, 04:09 PM Reply Like
  • Micah
    , contributor
    Comments (461) | Send Message
     
    So why then does AMZN have the higher multiple?
    27 Oct 2012, 04:56 PM Reply Like
  • Aristiphones
    , contributor
    Comments (1327) | Send Message
     
    not a holder of Amazon stock but love the company as i used to love Google "before it went normal" as anyone knows in these here parts. I have been bullish on this company in general and Jeff Bezos in particular for many years now. Amazon has a LONG way to go before it becomes "normalized" ..."in theory." Certainly it is a company waiting to be struck by reality...hence this is the bleeding edge of being an equity bull. the backdrop is not detrimental with interest rates at or near zero, a revolution in energy and engine technology well underway, government support for the economy at large being effected, taxes staying put (for now)...an albeit anemic recovery. what happens at the macro or micro "Amazon level" i have no clue (other than to say in my view because of their cloud based computing systems that have been deployed at the level of the consumer they simply have a comparative advantage that cannot be matched by any other e-tailer and indeed many other tech companies as well--hello, Microsoft??!!!) about...nor have i been given one. Sometimes the best thing to say if you are CEO of such an Endeavor "are best left unsaid." We'll see for how long Jeff Bezos can maintain "the strategy is growth" as "the growth strategy." I know this: there is nothing empirically to prevent execution as i see no competition for the time being. The Luddites are in charge of a vast swath of USA Inc...as well as the bulk of a corrupt political sect. Markets are by definition forward looking...and have little patience with those only enamored with their own appearance before a mirror and "reliving the glory daze." But the truth will be told...as it always is...in the numbers. In this case...that number will be the (unstated) plan for revenue growth...which is the plan when putting the pedal to the metal of a re-investment strategy en toto. Hard to hide price to sales as it is by far the one metric that an equity does respond to aggressively. One cannot complain about the execution to date...and needless to say there is more than enough room for a "reckoning" in the future.
    27 Oct 2012, 05:11 PM Reply Like
  • Dennis Baker
    , contributor
    Comments (1025) | Send Message
     
    >> So why then does AMZN have the higher multiple? <<

     

    Multiples are more or less arbitrary based on what the market feels a company is worth. In Apple's case, everyone owns lots of Apple. Its the biggest market cap in the world, most mutual funds are overweight on shares, most hedge funds own it... not a lot of people out there stirring up demand.

     

    Amazon is a high profile company and they are growing. I'd love to own them myself, but at some point either they are going to have to multiply earnings by 10 or the stock is going to implode. I'm not sure I want to be sitting on that.
    27 Oct 2012, 06:42 PM Reply Like
  • The Fox
    , contributor
    Comments (614) | Send Message
     
    215304,

     

    Did you even read the market current. Earnings would be better IF they weren't spending money at break neck speed. Why is that difficult to understand? Also, how are you going to have high margins in discount retail? That is an oxymoron. Amazon will dominate to a much larger degree than Apple when it is all said and done. I am not defending the valuation, but Amazon literally has no equal in their space and no one in sight to challenge them. Apple isn't even in that boat.
    27 Oct 2012, 08:54 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17139) | Send Message
     
    It's impossible for AMZN to dominate more than AAPL. AMZN won't even match WMT, and WMT, gigantic as it is, doesn't "dominate" but a small part of retail (smaller than AAPL in its own markets)

     

    You're also wrong about AMZN having no equal. Both COST and WMT operate with lower costs than AMZN, so AMZN can't really face either of them in a price war.
    27 Oct 2012, 08:56 PM Reply Like
  • Zhang Fei
    , contributor
    Comments (606) | Send Message
     
    It's a remnant of the internet bubble. The last bubble standing... (It wasn't just retail investors who got burnt, either - just look at the technology fund numbers from that time frame).
    27 Oct 2012, 09:09 PM Reply Like
  • JeffreyLangBoyd
    , contributor
    Comments (626) | Send Message
     
    I agree with you that if Amazon raised prices they would lose customers and you make many other good points that I am in complete agreement on but I'm not sure why you think they are "locked in."

     

    One of these days they will likely increase prices and many folks will stick with them given the great convenience they provide.
    27 Oct 2012, 09:26 PM Reply Like
  • sfphoto
    , contributor
    Comments (666) | Send Message
     
    AMZN has no equal? Ever heard of Alibaba? Fast-growing ecommerce giant and highly profitable too because they don't have to "invest in the future" and waste money on warehouses, tablets, movies, etc. People assume that AMZN will someday take over the world of retail but in China, Alibaba dominates retail to an extent that even Walmart doesn't enjoy elsewhere in the world. If there is concrete evidence that AMZN's business model is fundamentally flawed, try studying Alibaba and you will know why Jack Ma -- not Jeff Bezos -- will be crowned the King of Ecommerce.

     

    At the end of day, no matter how much the so-called analysts want to rationalize it, AMZN stock is nothing more than a pyramid scheme to launder printed money from Bernanke's perpetual money printing machine. Once the money printing stops (and it looks like QE3 is the last run), the whole pyramid scheme will collapse violently. And the Amazing AMZN Show -- the most expensive circus in world history -- will finally close its curtain...leaving Jeff Bezos as the Emperor wiithout clothes. Period.
    28 Oct 2012, 10:26 AM Reply Like
  • SA Editor Eric Jhonsa
    , contributor
    Comments (738) | Send Message
     
    Actually, a gross margin of 25% (which itself is depressed some by heavy capex) suggests Amazon doesn't need to raise praises to be far more profitable.

     

    You're talking about a company that's building 19 distribution centers this year (they don't come cheap) in order to lower shipping times, that's spending billions to match Netflix's streaming library even though it doesn't directly make a cent from all that content (only indirectly via Prime subscriptions), and which takes losses on tens of millions of e-reader/tablet sales, not to mention some of the e-books that are read on them. A company that increased headcount by 13K just in the last quarter - no one can convince me all of those new hires were necessary to support the business.

     

    Amazon invests differently from just about any other retailer for the sake of future growth. Target currently has a 4.1% net margin. If Amazon actually tried to focus on profitability, it could probably have a 5%-6% net margin considering it doesn't need to support physical stores (as BKS and BBY can vouch, that makes a big difference) and now generates a lot of revenue from higher-margin services (reseller fees and AWS). Longer-term, a ~7% net margin is probably achievable.

     

    A 5%-6% margin would give Amazon a $4B-$4.8B in 2013 profit, based on next year's estimated sales. That means the stock would have a forward P/E of 22-27. Maybe 25-30 if you assume sales suffer a bit from that focus on profitability. Still not cheap, but much more understandable.

     

    I don't have a position in Amazon, and if I was long, I'd be worried that Bezos still hasn't provided a timetable for dialing back spending. But I think anyone who shorts this stock just based on its P/E is playing a dangerous game. Wall Street is looking at things differently, and whether you agree or disagree with its conclusion, it has its reasons for valuing Amazon the way it does.
    28 Oct 2012, 12:42 PM Reply Like
  • Dialectical Materialist
    , contributor
    Comments (4458) | Send Message
     
    Shorting is always a dangerous game by definition. Finite returns and infinite possible losses. But I think the notion that Amazon could get anywhere near to 5% margin in the near future is fantasy.

     

    You list all the ways they are aggressively spending money (including hiring employees you say are not necessary to support the business) and these are just supposed to be good things?

     

    Look at just the e-book reader losses to begin with. Tablets are being updated frequently. They will lose their captive audience unless they keep churning out new loss leading tablets every year or so. Who will stick with a two year old Fire HD when there is something better that is just as cheap? So Amazon will have to have its own "even cheaper" tablet. This means they don't get but 18-24 months to turn a profit from each customer snagged by the loss leading tablet.

     

    In the meantime, companies that make money selling their tablets (Microsoft and Apple for example) will simply accumulate even more money they could deploy to take out another of Amazon's fronts -- streaming video. Everyone said that Netflix's problem was that it had no moat. Amazon has no moat either. They are losing money in order to attract customers that can be stolen from them the minute another big player decides they want to spend some cash to compete. Where would this cash come from? Why the money they are getting by not selling hardware at a loss of course!

     

    Amazon is spending money to attract customers but these customers are not sticky. The only way Amazon retains these customers is to continue to burn cash.

     

    To me, that is a truly dangerous game.
    28 Oct 2012, 02:49 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17139) | Send Message
     
    Eric, AMZN's gross magins is NOT 25%, in spite of AMZN and the analysts using that number. You know why? Because the cost of sales included in that number pertains only to product sales. Service sales also have cost of sales, only it's diluted in the rest of the operating costs.

     

    Also, capex does not reduce gross margins.

     

    Also, AMZN's operating costs below the official cost of sales are much larger than WMT's or COST's, so you have no certainty that it can hit a 5-6% net margin when competing on price.

     

    I'll have an article out soon which will show WHERE, exactly, has Amazon lost its earnings, and it has nothing to do with investment.
    28 Oct 2012, 03:25 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17139) | Send Message
     
    Dialectical, you'll love an article I have coming out which kind of puts this "investment being the reason earnings are bad" to rest.
    28 Oct 2012, 03:26 PM Reply Like
  • SA Editor Eric Jhonsa
    , contributor
    Comments (738) | Send Message
     
    "these are just supposed to be good things?"

     

    I think they're questionable, probably wouldn't be spending the same way if it was up to me. But there's a logic to it as well, judging by the growth and unmatched scale they've produced.

     

    "Amazon has no moat either."

     

    Amazon's scale gives them pricing power that other online retailers don't have, and also lets them afford a giant distribution system that lowers shipping times. And while traditional retailers such as Wal-Mart and Target can match Amazon's pricing power, they can't match the cost structure of an online retailer that doesn't have to support physical stores.

     

    "Amazon is spending money to attract customers but these customers are not sticky."

     

    A lot of them seem pretty loyal to me. But I agree the loyalty hasn't been purchased cheaply.
    28 Oct 2012, 04:17 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17139) | Send Message
     
    Eric, you're wrong about the cost structure - you're implying that AMZN has lower costs than bricks & mortar, and that is not true when one compares AMZN to WMT or COST.

     

    That's what people think, but it isn't consistent with reality. AMZN has higher costs because the typical customer does not account for his own costs to travel to a store and pick & pack his purchases, whereas that same customer WILL account for those costs if AMZN tries to charge for them. The end result is that AMZN has to eat pick & packing and delivery costs, which exceed the costs bricks & mortar incurs with the additional physical presence and staffing.
    28 Oct 2012, 04:26 PM Reply Like
  • SA Editor Eric Jhonsa
    , contributor
    Comments (738) | Send Message
     
    "Because the cost of sales included in that number pertains only to product sales. Service sales also have cost of sales, only it's diluted in the rest of the operating costs. "

     

    It covers both product and service expenses. Here's Amazon's 10-Q description:

     

    http://1.usa.gov/UWegsW

     

    "Cost of sales consists of the purchase price of consumer products and digital content where we are the seller of record, including Prime Instant Video, inbound and outbound shipping charges, and packaging supplies. Shipping charges to receive products from our suppliers are included in our inventory, and recognized as cost of sales upon sale of products to our customers."

     

    Moreover, GM is hurt by the losses Amazon is choosing to take on Kindle e-reader/tablet sales.

     

    "Also, capex does not reduce gross margins."

     

    It does to the extent that depreciation on capex is reflected in cost of sales. That said, capex related to tech investments does get labeled under Technology & Content expenses.

     

    "Also, AMZN's operating costs below the official cost of sales are much larger than WMT's or COST's"

     

    That has a lot to do with the manic pace at which Amazon's chosing to spend on fulfillment, streaming rights, and AWS. If Amazon chose to bring down those costs, the story would be different.
    28 Oct 2012, 04:32 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17139) | Send Message
     
    Nope - read the thing again, it includes only products where AMZN is the seller of record - does NOT include 3P and does not include AWS either.

     

    Those, making up "services", have their cost of goods spread across several other P&L lines, including "fulfillment" (3P) and "technology" (AWS). That«s why it is said that 3P and AWS go into gross margins at 100% (while obviously they don't have 100% gross margins).

     

    Yes, GM is affected by the 0% margin products.

     

    Depreciation is not being taken at the cost of goods level, it's mostly inside "technology" for sure, given the speed at which it's hitting . And the fulfillment centers aren't even being depreciated in AMZN's account because they're all leased.

     

    ------------

     

    If AMZN choosed to bring down the streaming rights it would have an impact, but then AMZN would no longer have the free video (which I believe was a blunder).

     

    Fulfillment AMZN needs it to fulfill the orders, it's not an option.

     

    Tech. AMZN could spend less and would have a materially positive effect after 2 years (after depreciation fell considerably).
    28 Oct 2012, 04:39 PM Reply Like
  • SA Editor Eric Jhonsa
    , contributor
    Comments (738) | Send Message
     
    Paulo, I'm pretty sure a lot of Barnes & Noble and Best Buy shareholders would disagree with you :). Online retailers have inflicted enormous pain on those companies because of their lower cost structures. This is reflected not only in Amazon's pricing, but in the pricing of competitors such as Newegg, Buy.com, and the numerous merchants who rely on eBay.

     

    For goods that don't have huge shipping/fulfillment costs relative to their price, online retail presents a superior cost structure relative to bricks-and-mortar. That's been pretty well-established at this point, hence e-commerce's disruptive impact on the retail book, electronics, and collectibles industries (among others).
    28 Oct 2012, 04:45 PM Reply Like
  • SA Editor Eric Jhonsa
    , contributor
    Comments (738) | Send Message
     
    Amazon is the "seller of record" for a lot of digital content services, that gets reflected in cost of sales. Agree that AWS and some other services expenses aren't included, and they should be.

     

    "Fulfillment AMZN needs it to fulfill the orders, it's not an option."

     

    They don't need to build 19 new DCs this year and increase headcount by 13K in a single quarter (much of which has to do with fulfillment). That's a discretionary choice on Amazon's part to lower shipping times and improve customer service. And certainly one that can be questioned given the bottom-line impact.
    28 Oct 2012, 04:58 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17139) | Send Message
     
    WMT and COST are more eficient than BKS and BBY, so much so that they still haven't lost any margin.

     

    In some goods online retail might have an advantage, but that's far from saying it has an advantage in everything and the world is their oyster. The way AMZN's margins have gone, that's obviously not true.
    28 Oct 2012, 05:00 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17139) | Send Message
     
    What I mean when I say "products" is that the cost of sales is only relative to the "product sales" line. That's obvious from reading both descriptions.

     

    The "services" line (comprising AWS, 3P, etc) is carried at 100% margin because "cost of goods" does not include any cost for them, though those activities also have "cost of goods" and GM below 100%. It's just that their cost of goods is mixed up in the remaining operating costs.

     

    Said another way, the reported and much talked about "gross margin" is not calculated right. The only "gross margin" that can be calculated for AMZN is the GM on "product sales", because cost of goods is only for those sales.

     

    As as I'll show in my next article, when you calculate GM properly, a giant surprise makes its entrance.
    28 Oct 2012, 05:03 PM Reply Like
  • SA Editor Eric Jhonsa
    , contributor
    Comments (738) | Send Message
     
    WMT and COST differ from BKS and BBY in that they sell a lot of products (groceries, apparel, various household goods, etc.) that either aren't economical to sell online, and/or which consumers prefer to examine first-hand before buying. But they're gradually getting disrupted by online retail as well...even if consumers won't be using Amazon to buy refrigerators and sofas en masse anytime soon.

     

    Look forward to seeing how you calculate Amazon's GM in your column. I think most of their cost of sales is directly accounted for, though I'm sure AWS infrastructure expenses are significant.
    28 Oct 2012, 05:17 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17139) | Send Message
     
    Eric, the cost of sales on their P&L is all relative to the "product sales" line. That's the point.

     

    Service sales has "cost of sales" as well (as we can see, by looking at EQIX, in a business similar to AWS, carrying 50% GM), it's just that AMZN has choosen to dilute it throughout operating cost (in AWS's case, the cost is in the "technology" line).

     

    Now, since "cost of sales" all pertains to "product sales", it makes no sense to calculate gross margin by doing (product sales + service sales) - cost of sales. Instead, it should be just product sales - cost of sales (because, again, the cost of sales pertains only to the product sales).

     

    This is throwing everyone off and making people think AMZN's gross margins are expanding wildly (while, oddly enough, operating profit continues to fall).

     

    I will show that gross margins haven't been doing what people think they've been doing, and the impact has been gigantic.
    28 Oct 2012, 05:21 PM Reply Like
  • SA Editor Eric Jhonsa
    , contributor
    Comments (738) | Send Message
     
    Yes, I know. However, AWS expenses only moderately move the needle for a company of Amazon's size. Based on AWS' estimated $2B/year run rate, a 50% GM might yield a cost of sales of $1B/year, or $250M/quarter. Whereas Amazon's stated Q3 cost of sales (which, as you note, doesn't include AWS expenses) is $10.3B.

     

    Also, Rackspace, which is a more direct competitor to AWS than Equinix, has a GM north of 70%. AWS' GM could be in that range, in which case its quarterly cost of sales would be around $150M. Or perhaps it's somewhere in between, due to Amazon's aggressive pricing.

     

    Need to head out. Enjoyed discussing this with you.
    28 Oct 2012, 05:35 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17139) | Send Message
     
    Yes, between AWS and 3P the discrepancy only moves the needle a couple %. But it's a couple % that gets a lot of celebration.
    28 Oct 2012, 05:37 PM Reply Like
  • shangjeen
    , contributor
    Comments (251) | Send Message
     
    Paulo, you forget one thing. AMZN can rapidly expand its footprint globally (as it is already doing) and grow margins at an exponential rate.

     

    This pertains not only to traditional digital media (videos/ music) but also physical items, so long as shipping costs are reasonable. DVDs, watches, clothing, books - all light weight, higher margin items that Amazon can push to the overseas markets.

     

    WMT, COST, even AAPL (which relies on Apple stores as much as cell carriers to push its iDevices) can't and will never have that advantage.

     

    Additionally, Apple is almost solely reliant on the sale of its gadgets and computers to generate profits in an extremely competitive market - Google are ahead (in marketshare) while Microsoft are coming in strong. Amazon on the other hand has no real competition as of now, although Alibaba may eventual mature into one in the future.

     

    While I'm not saying Wall Street's valuation is correct (I have no position on AMZN), competition risk and global potential are probably part of the rationale behind the valuation as well.
    29 Oct 2012, 05:07 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (17139) | Send Message
     
    That "can expand margins at an exponential rate" is basically a dream.

     

    It can't, it won't, it hasn't. There's competition to retail everything, worldwide, and much of that competition is more efficient than AMZN (has lower costs).
    29 Oct 2012, 08:04 AM Reply Like
  • shangjeen
    , contributor
    Comments (251) | Send Message
     
    "There's competition to retail everything, worldwide, and much of that competition is more efficient than AMZN (has lower costs)."

     

    That's simply not true.

     

    Name me one, just one online retailer with the global presence of Amazon?

     

    There aren't any.

     

    Local brick-and-mortar may have lower costs but some people just like the convenience of online shopping. Local online retailers may have lower costs but lack the extensive product range of Amazon.

     

    Simply put - Amazon has no competition. Apple has plenty.
    29 Oct 2012, 11:29 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (17139) | Send Message
     
    WMT, which is more efficient than AMZN.

     

    And besides, there is no competitive advantage for AMZN to be present in more geographies - it still has to out-compete the locals and right now, cost-wise, it can't in many instances.

     

    To say AMZN has no competition is more than deep denial. The thing is running at breakeven - HOW can that be compatible with "no competition"?
    29 Oct 2012, 11:31 AM Reply Like
  • shangjeen
    , contributor
    Comments (251) | Send Message
     
    WMT is in 15 countries - most of its profit comes from the US and LatAm. It has a presence but not that wide in China.

     

    Contrast this to Amazon which ships globally and has distribution centres in the US, Europe (Western and Eastern), Japan, etc.

     

    While Amazon may or may not beat the locals on price - it can (and does!) beat them on product range.

     

    I agree with you that the margins do not justify the current valuation but if you ask me which business model is more resilient: Apple's or Amazon's, I'd pick Amazon in a heartbeat.
    29 Oct 2012, 12:33 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17139) | Send Message
     
    Do you think the product range is lower on locals (or WMT, or anyone else) because of an inability to carry more, different, merchandise?

     

    It's a rational decision. Products sell in such a way that like 80% of volume comes from 20% of the products. Adding an extensive array of products can increase sales somewhat but reduces profitability substantially. So most retailers opt NOT to carry everything.
    29 Oct 2012, 12:37 PM Reply Like
  • shangjeen
    , contributor
    Comments (251) | Send Message
     
    That depends, Paulo.

     

    If a local retailer serves a local market, then sales volumes of a particular item may not justify stocking it. However, when that item is sold in quantities around the globe - then there may be enough incentive to stock the item. Enter Amazon.

     

    Take English paperback books as an example. I lived in Paris for 3 months in 2010. It was impossible to find any English books - local bookstores wouldn't have them because the sales volumes wouldn't justify stocking them. But did Amazon carry those books? Yep. Did they ship to Paris? You bet they did! Guess who got my business?

     

    Replicate this scenario by 10,000 across Japan, Eastern Europe, etc not just for books but digital content, clothes, watches (Amazon even sells some mid-range luxury Swiss watches) and you have a presence no retailer can match. Also, 3rd party sellers further reduce their stocking costs - albeit cuts into their margins.
    29 Oct 2012, 12:48 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17139) | Send Message
     
    shang, what you say is the reason why there are specialized retailers - to make sense to stock specialized stuff.

     

    Being a global retailer doesn't help, as stocking something in the U.S. to sell in Europe or vice-versa would be uneconomic.
    29 Oct 2012, 12:55 PM Reply Like
  • The Geoffster
    , contributor
    Comments (4002) | Send Message
     
    AAPL has 120B in cash. Lets see how their Xmas sales do before we consign them to dust bin.
    27 Oct 2012, 05:20 PM Reply Like
  • TruffelPig
    , contributor
    Comments (4040) | Send Message
     
    AMZN share holders will eventually go through a period of P/E compression and the P/E ratio will come back to earth. When no one knows but it will happen.

     

    The same AAPL arguments being made right now have been made last year when AAPL was at 350. I guess we might see AAPL stock trading at $1000 eventually. AAPL can still grow. However, for world domination they need to have another ground breaking event. The first one was IPod with music downloads, second IPhone, third IPad. I guess AAPL TV and AAPL becoming a media giant could just do the trick. They can throw 120 billion in that direction!
    27 Oct 2012, 07:26 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17139) | Send Message
     
    I will have an article out which will show the gross margin story is total malarkey.

     

    It will take a while to complete, though.

     

    And that's not the only thing I have found. I have more material I'm working on. I've some some interesting stuff which also calls into question parts of the operating cash flow / EBITDA Amazon.com has been reporting. Nothing fancy or illegal, but there's definately an effect at work here.

     

    And even that is not all, but the numbers take a while to work through as I'm having to build an entire model to explain this.
    27 Oct 2012, 07:31 PM Reply Like
  • 99profit-seeker99
    , contributor
    Comments (40) | Send Message
     
    If state sales taxes on Amazon purchases ramps nationally, it will take away an important competitive price advantage. Another growth-slowing consideration that could affect revenues and the P/E multiple in the future.
    27 Oct 2012, 07:51 PM Reply Like
  • Sal Marvasti
    , contributor
    Comments (1364) | Send Message
     
    yes P/E is not the be it end all.
    http://seekingalpha.co...
    27 Oct 2012, 08:13 PM Reply Like
  • rocback
    , contributor
    Comments (963) | Send Message
     
    Amazon has no durable advantage. Apple does. Anyone can do what Amazon does and eventually someone will. As to why the difference, as the greatest investor in history said: "the stock market is a voting machine short term but a weighing machine long term."
    There is so much profit in most apple holders accounts in long term gains, if there is no change made in our existing laws, the total long term cap gains rate will go from 15% to 23.9% (including the extra 3.9% for the Affordable care act). so people are looking for any reason to get out of apple and book their profits at the lower tax rate. Watch, all those people will be coming back in on Jan 2nd.
    27 Oct 2012, 09:56 PM Reply Like
  • Glenn Abrett
    , contributor
    Comments (1232) | Send Message
     
    Street cred here. Have had many amazon naked puts expire worthless. I just sold my January 210's puts for a small loss. A loss so small almost feel like I made money.

     

    Never again. Perhaps amzn will crater. Perhaps they will grow into their valuation. Perhaps they will pull some rabbit out of the hat. But the market has overvalued amazon for the last 14 years. It has been the long term and amazon has been weighed and found much heavier than many of us uber-bears can find reasonable.

     

    It is really simple why. Amazon's addressable market is simply all of retail for physical things and virtual products. Perhaps 100x their present sales. One supposition is that the future belongs to on-line retailing and that the bigger amazon grows the more power it has in the vastest market ever. No brick and mortar retailer ever had a tenth of the addressable market that amazon may have in the future. Wall Street simply likes Bezos strategy of forgoing profits to gain market share. Amazon has over 4bil cash and no debt. Until they start bleeding money Bezos can continue doing what he is doing.

     

    Now. Do I think that amazon is worth 400x present earnings? No way. Is it likely that it will ever generate profits to realize this valuation. No.
    Is it possible? Yes. Is the market entirely irrational and crazy all these years vis-a-vis amazon. That, I have finally come to realize is a no. It is not crazy. It may be wrong. But all the uber-bears of which I was one until this past weds have it wrong. It is not inevitable that amazon crashes, merely fairly likely.

     

    As to apple -- been an uber bull up until a few days ago as well. The reason apple's pe is so low is not that the market is crazy or stupid. It is simply that many people have made the reasonable judgment that apple is coming to the end of its fast growth stage and is already settling into maturity. Do I agree? No. But it is a credible thesis. Will apple shoot up into quadruble digits this winter after next earnings? Maybe. But probably not. More likely is that it grows slowly to perhaps double it's present size four or five years down the road. A nice investment. But nothing to go crazy over.
    27 Oct 2012, 11:57 PM Reply Like
  • Dialectical Materialist
    , contributor
    Comments (4458) | Send Message
     
    glennvirt, it sounds like you have been doing some soul searching. I will be most interested in following what piques your interest next.

     

    I am still short AMZN and long AAPL but what your comments are very reasonable.
    28 Oct 2012, 03:03 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (17139) | Send Message
     
    400 times earnings was before the last earnings release. Now it's at 2800 times.

     

    And all the market being their oyster is foolish - AMZN is not cost competitive with COST or WMT, so can't take them on price.

     

    And the market has NOT been irrational all those years, just in the last 2. Previously AMZN was growing earnings and could grow into the valuation. Not any more.
    28 Oct 2012, 07:50 AM Reply Like
  • Windsun33
    , contributor
    Comments (4222) | Send Message
     
    "...Amazon's addressable market is simply all of retail for physical things and virtual products...."

     

    I think that is what a lot of people are missing about Amazon - and whenever a new niche pops up, Amazon buys it or moves in. Apple cannot do that easily. I think I had a flash of insight just as glennvirt had - one day about last Christmas I realzied that not only was I now buying more online (mostly at Amazon) than in physical stores, but so were most of my friends and relatives.

     

    There are probably only three physical stores that I still visit in person on a regular basis anymore - Walmart, Home Depot, and Sam's Club (part of Walmart). 95% of my purchases for anything but "capital" home items (such as furniture) I buy online - and 3/4 of those purchases go through Amazon. I cannot recall the last time I went to a shopping mall...
    28 Oct 2012, 01:57 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17139) | Send Message
     
    There's not much reason to believe AMZN is making ANY money outside books, third party sales and maybe, AWS. And indeed, if AMZN is making money in any of those places, it's losing it elsewhere because earnings are now down to zero.
    28 Oct 2012, 03:28 PM Reply Like
  • Amir Houriani
    , contributor
    Comments (226) | Send Message
     
    In the end, the value of all investments are calculated in the same way: the total value they're worth to the holder. It doesn't matter if Amazon generated $1 trillion in revenues if it cannot monetize on it.
    27 Oct 2012, 10:47 PM Reply Like
  • dividend_growth
    , contributor
    Comments (2876) | Send Message
     
    Back in between 2004 and 2006, Amazon also went on a spending spree that saw its margin severely contracting, the market wasn't happy and sent AMZN down 60% in July 2006 from its peak in Jan 2004. Then in fall of 2006, Amazon finished that investment cycle and earning exploded to the upside. The stock quadrupled in less than a year, many funds were utterly surprised and burnt.

     

    Amazon began the current investment cycle in late 2010, but given the prior experience, the market fears to miss the train again and decides to hold on to AMZN.
    27 Oct 2012, 11:01 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17139) | Send Message
     
    So the stock goes higher even though earnings have now plunged below the lowest point of the previous cycle. It's kinda funny.
    27 Oct 2012, 11:34 PM Reply Like
  • Amir Houriani
    , contributor
    Comments (226) | Send Message
     
    Yea, it's ridiculous. In the after hours trading after Amazon released its earnings, its stock was down roughly 6% and ended closing unaffected. The next day, however, it was up 3%. I would short Amazon, but its investors are so irrational that my losses may hemorrhage my portfolio.
    27 Oct 2012, 11:39 PM Reply Like
  • James Davis
    , contributor
    Comments (185) | Send Message
     
    The reason is, I do business at Amazon once in a while and I wouldn't give 2 cents to Apple for any of their products.
    28 Oct 2012, 01:54 AM Reply Like
  • Amir Houriani
    , contributor
    Comments (226) | Send Message
     
    So the sole reason why Apple trades at a forward of 10 and Amazon trades at a forward of 100 is because you do business once in a while at Amazon? You really must be something.
    28 Oct 2012, 01:59 AM Reply Like
  • Be Here Now
    , contributor
    Comments (3626) | Send Message
     
    "Markets can remain irrational longer than you can remain solvent."

     

    Don't short it.
    28 Oct 2012, 02:33 AM Reply Like
  • Windsun33
    , contributor
    Comments (4222) | Send Message
     
    That is an axiom that many people forget.
    28 Oct 2012, 02:01 PM Reply Like
  • WisPokerGuy
    , contributor
    Comments (746) | Send Message
     
    Regarding all the above investment concerns about AMZN:

     

    I would advise anyone who owns or is considering owning AMZN to listen to or read a transcript of the last quarterly earnings report on Thursday. Bezos doles out profit guidance, financial information & other company specifics like they are state secrets. Basically Bezos tells everyone to mind their own business. The CNBC morning team was laughing about it on Friday morning's show.

     

    Total disclosure, I am long AAPL and have no interest in AMZN at all. However, if you listen to this conference call and still think you want to own AMZN into the future, you have more guts then I do. Personally, I like at least some information about what I'm buying into when I put my money down. How a CEO of a major corporation can get away with a pass from analysts by acting like Bezos did just amazes me. If and when the love affair between AMZN and their covering analysts ever does happen to end, it will probably be a blood bath. Can you say "Netflix"? Buyer beware.
    28 Oct 2012, 03:03 AM Reply Like
  • Windsun33
    , contributor
    Comments (4222) | Send Message
     
    "..The CNBC morning team was laughing about it on Friday morning's show..."

     

    If I take any cues at all from the CNBC morning crew, it is that they are wrong far more than they are right. It ws not all that long ago that they were predicting Apple to hit $1000+ by December.

     

    And just for the record, I own both Amazon and Apple stock.
    28 Oct 2012, 02:04 PM Reply Like
  • pirota
    , contributor
    Comments (150) | Send Message
     
    One of them is company which helps people get good things with as low as possible price while the other one if it can will charge you for the air that you are breathing
    28 Oct 2012, 03:39 AM Reply Like
  • Amir Houriani
    , contributor
    Comments (226) | Send Message
     
    In the end, it all depends on which company can monetize on their business strategy. So far, Amazon can't, while Apple can.
    28 Oct 2012, 03:54 AM Reply Like
  • bailinnumberguy
    , contributor
    Comments (1090) | Send Message
     
    AMZN currently trading at a very reasonable trailing P/E of 3,184. AAPL at 13.68. How can a company that's been around as long as Amazon trade at such a high multiple? They make up for their lack of profitability w/ volume.
    28 Oct 2012, 09:56 AM Reply Like
  • rocback
    , contributor
    Comments (963) | Send Message
     
    The stock market short term is a voting machine and long term its a weighing machine.
    28 Oct 2012, 11:05 AM Reply Like
  • Somporn Suksi
    , contributor
    Comments (125) | Send Message
     
    Still the best ever article written about AAPL in the last month:

     

    http://bit.ly/VBbBDj
    28 Oct 2012, 01:20 PM Reply Like
  • rocback
    , contributor
    Comments (963) | Send Message
     
    The experts are weighing in on the new Surface tablet and it isnt good:

     

    http://bloom.bg/SPExEE-FUC6VPWZS9KTaY36Pq~7q...
    28 Oct 2012, 01:40 PM Reply Like
  • rocback
    , contributor
    Comments (963) | Send Message
     
    http://bloom.bg/SPExEE-FUC6VPWZS9KTaY36Pq~7q...
    28 Oct 2012, 01:41 PM Reply Like
  • bjnflicks
    , contributor
    Comments (1562) | Send Message
     
    More BS. Amazon deserves to be cut in half as a stock. for one thing it's about to be taxed in California finally and that will spread across the country. That opens the door for all kinds of competition and makes people less likely to shop online.

     

    I sell on Amazon and can tell you they are cutting profit margins all over the place with their free shipping et, when they do not even need to. Giving away Kindles at cost. And still the iPad mini will hurt sales of that item. Amazon will continue generating tons of cash due to the work of people like me, hundreds of thousands of us, but boy oh boy would I love to leave Amazon, if someone would only create a competitive company capable of the same reach. I would love to leave Amazon because Amazon is a corrupt system which often discourages fair trade and competition. It rewards many very dishonest mega-sellers and plays all kinds of tricks to hog business their their own special interests. So they are not seller friendly.

     

    As for Apple, they are a true massive growth companya nd almost totally dominating in every sector they enter. Millions and millions more people are switching from Windows to Ios and staying there. They are also stealing market share from Android and will continue to at elast on the profit heavy high end amongst affluent buyers globally. Apple is also a screaming bargain buy right now, the cheapest major stock around. And the cheapest growth company period. God knows why people were selling below $600 the other day but I was buying, and thinking it was like free money. Sure there is always a risk investing, but at these prices, the risk is practically non-existent. Dont expect the big money byers to pass up these bargain prices for long. I expect lots of great news and lots of big price spikes going forward, and no real resistance until $700 again.
    28 Oct 2012, 05:47 PM Reply Like
  • SunshineNowExcellent
    , contributor
    Comments (8) | Send Message
     
    "Greater Fool."

     

    Compare (from finance.yahoo.com):
    AAPL: P/E (ttm): 13.68
    AMZN: P/E (ttm): 2,836.13

     

    AAPL: Price/sales: 3.66
    AMZN: Price/sales: 1.76

     

    AAPL: PEG ratio: 0.50
    AMZN: PEG ratio: 8.44

     

    Amazon looks WAY overbought. Even if Price/Sales dropped to 1 or less, that PEG ratio looks sick, and so does the p/e.

     

    Greater fools are hanging in there though, aren't they.
    I put this in the same category as people buying gold right now.

     

    I remember the gold bust in the late 1970s. Oh, everyone was so dang sure gold would not stop its rise. It crashed from 900 to 300 in a minute. And stayed down, 250-300, for over a decade.

     

    While it's true you can pay for growth -- what if others enter and/or better compete with Amazon in the growing online retail channel? That would cap AMZN's growth. And you cannot say "it hasn't happened yet, so it won't."

     

    I'm not saying there are no greater fools for AMZN out there. THERE ARE. And here's the rationalization they use to overpay for AMZN: "online retail has a long ways to grow, and Amazon is the dominant force now, and will be then -- when I decide to sell, after Amazon starts having sufficient earnings."

     

    Walmart is the biggest threat to Amazon. To me, Walmart right now looks like Facebook did in the early days, when Myspace was the biggest social network. The challenger. No one expected Myspace to be eclipsed so quickly.

     

    There is a huge number of greater fools to buy AMZN. They ignore a couple things, with historical precedents:

     

    1) there are always 2 large players in a market (Coke/Pepsi, Amazon/Walmart, Apple/Samsung). The least profitable player almost *never* wins over the long term.

     

    2) Even if you're the #1 player in a market, you can fall out of favor. Apple was the first large-scale maker of personal computers -- they started in 1976. The IBM PC did not come out for 6 years. Then took over the PC market all throughout the 1980s and 1990s, 20+ years. Apple stock tanked.

     

    If you want to do 'greater fool' investing, rest easy -- right now we are not out of greater fools yet. But it will happen.
    28 Oct 2012, 11:29 PM Reply Like
  • HarryWanger
    , contributor
    Comments (180) | Send Message
     
    Seriously, why are there 10 articles a day about the value of this company and their shares?? It should be pretty simple but there is no transparency; no accountability; nothing.

     

    Why anyone would think that's a good investment is beyond me. Forget multiples; forget margins, forget revenues; just simply look at how the company keeps everything secretive.

     

    I remember in the 80's when guys would tell me about how giving them $100 would move me up the "pyramid" to amazing profits. "No brainer" they always said. It always ended badly for them as it will here.

     

    If you invest in a secretive; arrogant company you deserve to get your face ripped off. And you will...at some point.
    29 Oct 2012, 02:24 AM Reply Like
  • Dialectical Materialist
    , contributor
    Comments (4458) | Send Message
     
    Amazon?
    29 Oct 2012, 02:26 AM Reply Like
  • PersonaNonGrata
    , contributor
    Comments (62) | Send Message
     
    Samsung?
    29 Oct 2012, 10:54 AM Reply Like
  • Sam Liu
    , contributor
    Comments (3864) | Send Message
     
    Scott Forstall Leaving Apple: Company Announces iOS Boss' Departure; Retail Head John Browett Also Out

     

    AAPL GOING SOUTH
    29 Oct 2012, 09:23 PM Reply Like
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