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His company's profits are minuscule by any historical valuation but Amazon stock is at an insane valuation. For this value to be justified he would have to beco

His company's profits are minuscule by any historical valuation but Amazon stock is at an insane valuation. For this value to be justified he would have to become the world's only distributor of everything.

adventured 9y ago
That's an extreme exaggeration. Amazon's market cap at close today was $438 billion. To match Google's earnings multiple, Amazon would need something in the ballpark of $14 billion in net income. They're chugging toward $200 billion in sales. $14b in net income off of that is very reachable. Even if we apply a much more conservative premise to it, they're still growing above 20% - maybe it takes them $280b in sales to get to $14b in net income; they're going to get to that sales level within six or seven years plausibly. AWS alone is all but guaranteed to generate $5+ billion in operating income within a few years. The issue isn't whether Amazon will one day justify ~$400 billion, as that's very likely, it's how far from the future are the gains being pulled. 3 years? 5 years? 10 years?
- appleiigs 9y ago
  Amazon has $136B in sales, which produces $2.4B in net income (1.7% margin). How do you get $14B in net income from $280B in sales? With a 1.7% net income margin, Amazon would need $824B in sales to get $14B, compared to the $135B now. As a reference, Walmart is largest company in the world by revenue at $438B. Apple $233B. The P/E ratio tells you how many years to recover the cost of your investment. Amazon is at 187 years.
  - nodesocket 9y ago
    Great analysis and breakdown.
  - vacri 9y ago
    > As a reference, Walmart is largest company in the world by revenue at $438B. Apple $233B. Weird that the catchcry for one is selling the cheapest crap possible, and the catchcry for the other is premium blend, no discounts. What about us poor folks in the middle? :)
    - sbuttgereit 9y ago
      You're either "aspirational", meaning that you shoot for the expensive Apple products rather than a simple run of the mill PC for status reasons, or you're "thrifty", meaning that since you've blown most of your cash on a few aspirational products, you can only afford Walmart for anything else you want to buy. Yes, I'm being a bit glib, but there's some truth in that analysis. People in the middle do try to buy some higher end goods in areas they want to signal status on... they do so selectively, but if they can afford it and its a product that makes a desired statement, they go for it. An Apple product that a billionaire would typically buy is often the same model that a middle income earner can buy, yet everyone knows they aren't the cheapest things around. On the other hand, if you're buying expensive in one area, you're also probably buying cheap in other areas, so Walmart, Ross, etc. are on the table for the middle earner as well. For middle of the road price/products there's less prestige so you don't get that and there's can be debatable quality difference... so... the appeal can be less for something middling.
      - Naritai 9y ago
        I've read other market analyses that say basically the same thing - there's no money to be made in being a 'good brand', you'll do much better chasing either high-end market or competing on cost. That's why companies like Gap & Macy's are suffering, whereas each of Louis Vuitton / Burberry and H&M / TJ Maxx have been expanding like crazy.
  - acro 9y ago
    An investor can get value from a company in other ways than net profit. For instance share buybacks, dividends, mergers and acquisitions, companies can pay back capital. P/E ratio is just one very simple number which is not applicable to all situations. For example REITs have often very high P/E because most of their profit is distributed as dividends. Using P/E to try to value Amazon is in my opinion misguided.
    - simula67 9y ago
      > For instance share buybacks, dividends, mergers and acquisitions, companies can pay back capital Where will the money for all of this come from ? Why the comparison to real estate ? Is your argument that assets held by Amazon will appreciate somehow in the future ? If so which ones ?
      - acro 9y ago
        Revenue is the top line, net profit is the bottom line. There are many ways to get money out of a company which come before the net profit line in an income statement. Companies can also spin off parts of them in many different ways. The only thing I'm stating that P/E is often the wrong number to look at in a company.
- danderino 9y ago
  7% margin on online retail seems pretty high
mehwoot 9y ago
His company's profits are minuscule by any historical valuation Because he reinvests all the profit back into the company. Which makes sense- what is he going to do taking money out of the company anyway? Unless you want to buy sports teams or donate it to charity, the only thing you can do with the profits is invest them, and obviously you'd trust yourself as the CEO of a sprawling company to invest it the best.

adventured 9y ago

That's an extreme exaggeration. Amazon's market cap at close today was $438 billion. To match Google's earnings multiple, Amazon would need something in the ballpark of $14 billion in net income. They're chugging toward $200 billion in sales. $14b in net income off of that is very reachable. Even if we apply a much more conservative premise to it, they're still growing above 20% - maybe it takes them $280b in sales to get to $14b in net income; they're going to get to that sales level within six or seven years plausibly. AWS alone is all but guaranteed to generate $5+ billion in operating income within a few years. The issue isn't whether Amazon will one day justify ~$400 billion, as that's very likely, it's how far from the future are the gains being pulled. 3 years? 5 years? 10 years?

appleiigs 9y ago
Amazon has $136B in sales, which produces $2.4B in net income (1.7% margin). How do you get $14B in net income from $280B in sales? With a 1.7% net income margin, Amazon would need $824B in sales to get $14B, compared to the $135B now. As a reference, Walmart is largest company in the world by revenue at $438B. Apple $233B. The P/E ratio tells you how many years to recover the cost of your investment. Amazon is at 187 years.
- nodesocket 9y ago
  Great analysis and breakdown.
- vacri 9y ago
  > As a reference, Walmart is largest company in the world by revenue at $438B. Apple $233B. Weird that the catchcry for one is selling the cheapest crap possible, and the catchcry for the other is premium blend, no discounts. What about us poor folks in the middle? :)
  - sbuttgereit 9y ago
    You're either "aspirational", meaning that you shoot for the expensive Apple products rather than a simple run of the mill PC for status reasons, or you're "thrifty", meaning that since you've blown most of your cash on a few aspirational products, you can only afford Walmart for anything else you want to buy. Yes, I'm being a bit glib, but there's some truth in that analysis. People in the middle do try to buy some higher end goods in areas they want to signal status on... they do so selectively, but if they can afford it and its a product that makes a desired statement, they go for it. An Apple product that a billionaire would typically buy is often the same model that a middle income earner can buy, yet everyone knows they aren't the cheapest things around. On the other hand, if you're buying expensive in one area, you're also probably buying cheap in other areas, so Walmart, Ross, etc. are on the table for the middle earner as well. For middle of the road price/products there's less prestige so you don't get that and there's can be debatable quality difference... so... the appeal can be less for something middling.
    - Naritai 9y ago
      I've read other market analyses that say basically the same thing - there's no money to be made in being a 'good brand', you'll do much better chasing either high-end market or competing on cost. That's why companies like Gap & Macy's are suffering, whereas each of Louis Vuitton / Burberry and H&M / TJ Maxx have been expanding like crazy.
- acro 9y ago
  An investor can get value from a company in other ways than net profit. For instance share buybacks, dividends, mergers and acquisitions, companies can pay back capital. P/E ratio is just one very simple number which is not applicable to all situations. For example REITs have often very high P/E because most of their profit is distributed as dividends. Using P/E to try to value Amazon is in my opinion misguided.
  - simula67 9y ago
    > For instance share buybacks, dividends, mergers and acquisitions, companies can pay back capital Where will the money for all of this come from ? Why the comparison to real estate ? Is your argument that assets held by Amazon will appreciate somehow in the future ? If so which ones ?
    - acro 9y ago
      Revenue is the top line, net profit is the bottom line. There are many ways to get money out of a company which come before the net profit line in an income statement. Companies can also spin off parts of them in many different ways. The only thing I'm stating that P/E is often the wrong number to look at in a company.
danderino 9y ago
7% margin on online retail seems pretty high

mehwoot 9y ago

His company's profits are minuscule by any historical valuation Because he reinvests all the profit back into the company. Which makes sense- what is he going to do taking money out of the company anyway? Unless you want to buy sports teams or donate it to charity, the only thing you can do with the profits is invest them, and obviously you'd trust yourself as the CEO of a sprawling company to invest it the best.