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"Your margin is my opportunity" - with that kind of attitude, Bezos is indeed a tough competitor. However, what puzzles me the most is the fact that investors

"Your margin is my opportunity" - with that kind of attitude, Bezos is indeed a tough competitor. However, what puzzles me the most is the fact that investors are letting Amazon chug along with barely any profits. Can someone please explain to me how Bezos is able to pull off a P/E of 240 for AMZN, when the company has been around for 20+ years and no longer considered a startup (i.e. no more hyper growth phase)? For comparison, other tech titans have P/E numbers as: FB (37), GOOG (36), MSFT (27), AAPL (17). Only NFLX (216) is in the same league as AMZN.

adventured 9y ago
The particularly big leap Amazon made in its market valuation, was actually one very specific thing: AWS. That tripled its market cap from ~$150 billion to where it's at now. Specifically when they started revealing how big it was, how fast it was growing, and the operating income numbers. December 2014, the stock was at $300. Now it's $959. Nearly all of that gain is from that single thing, speculation about its future worth that is. It's not the retail business or Echo or tablets or Kindle that did it. Those are not generating huge amounts of operating income. The market is appraising (drooling about) AWS as being worth an extraordinary sum. Businesses are typically valued based on future projected earnings. For AWS that might be akin to $50-60 billion in sales and $16 billion in operating income (with a very rich multiple given our current market bubble). 20x multiple on $16b in operating income, there's $320 billion of Amazon's $460 billion. I'm not arguing AWS should be worth that, I'm saying the very inefficient market, filled full of mediocre investors and fools, is saying it is. One could argue the future operating income estimate might be high, but the market is frothing at the mouth right now, we're one or two notches (on a 10 notch scale) away from entering a euphoric insanity again given the market's (eg S&P 500) extreme PE ratio presently. Throw in Kindle, Prime, Echo, Tablets on that AWS $300 billion valuation. The traditional retail business is being valued at maybe $50 to $80 billion right now. If you look at the operating income projections for Amazon for the next few years, analysts are forecasting it's going to skyrocket, and that's solely based on AWS. Here's what's really going to happen: severe disappointment. We've witnessing peak Amazon in terms of market valuation in this general time frame (whether that's $500x billion or $700 billion, this particular market bubble represents the highest valuation Amazon will have for the next ~15 years, something equivalent to the stagnation Microsoft's stock enjoyed post dotcom bubble). Bezos becoming the world's richest briefly, is equivalent to the economic bubble peaks when someone decides to build a new world's tallest skyscraper nicely timed with the next crash.
sah2ed 9y ago
My layman understanding is that investors think Amazon still has enormous room to grow because Amazon's current market share of the entire US retail industry (online + offline retail) is about 7%. The one thing that will make online shopping appealing to far more consumers is same-day and eventually 1-hr deliveries, irrespective of your location in the continental US and the only way to do this reliably is when fulfilment is automated end-to-end. For fulfilment to be fully automated, self-driving cars and trucks need to be a reality as that is the only way to cap shipping costs in order to guarantee Amazon's promise of low prices. In order words, investors think Amazon's market share will grow even more as distribution costs start to fall when the shift from human to self-driving trucks becomes economically and technologically feasible. Self-driving cars are still at least decade out, IMHO. Add another decade for regulations (e.g. which party is directly liable in X types of accidents?) and infrastructure (e.g. cooperative signalling, standardized charging stations etc) to catch up. This is why Jeff Bezos likes to stress that it is still Day 1 at Amazon.
- saosebastiao 9y ago
  I can guarantee you that the Day 1 phrase at Amazon has exactly 0% to do with driverless cars. And it is foolish to ascribe any singular viewpoint to investors in general. While some investors may hold the views you do, you’re likely suffering from a false consensus bias if you think your views are shared by anything more than a single digit percentage of investors in general or even specifically Amazon’s investors. As for the rest of your theory, I also think it is complete rubbish, but feel free to do with your money as you please.
  - sah2ed 9y ago
    Sigh. You throw around words like foolish, bias, rubbish instead of providing a well reasoned counter argument. So all you have done is dish out a middle brow dismissal, well done.

adventured 9y ago

The particularly big leap Amazon made in its market valuation, was actually one very specific thing: AWS. That tripled its market cap from ~$150 billion to where it's at now. Specifically when they started revealing how big it was, how fast it was growing, and the operating income numbers. December 2014, the stock was at $300. Now it's $959. Nearly all of that gain is from that single thing, speculation about its future worth that is. It's not the retail business or Echo or tablets or Kindle that did it. Those are not generating huge amounts of operating income. The market is appraising (drooling about) AWS as being worth an extraordinary sum. Businesses are typically valued based on future projected earnings. For AWS that might be akin to $50-60 billion in sales and $16 billion in operating income (with a very rich multiple given our current market bubble). 20x multiple on $16b in operating income, there's $320 billion of Amazon's $460 billion. I'm not arguing AWS should be worth that, I'm saying the very inefficient market, filled full of mediocre investors and fools, is saying it is. One could argue the future operating income estimate might be high, but the market is frothing at the mouth right now, we're one or two notches (on a 10 notch scale) away from entering a euphoric insanity again given the market's (eg S&P 500) extreme PE ratio presently. Throw in Kindle, Prime, Echo, Tablets on that AWS $300 billion valuation. The traditional retail business is being valued at maybe $50 to $80 billion right now. If you look at the operating income projections for Amazon for the next few years, analysts are forecasting it's going to skyrocket, and that's solely based on AWS. Here's what's really going to happen: severe disappointment. We've witnessing peak Amazon in terms of market valuation in this general time frame (whether that's $500x billion or $700 billion, this particular market bubble represents the highest valuation Amazon will have for the next ~15 years, something equivalent to the stagnation Microsoft's stock enjoyed post dotcom bubble). Bezos becoming the world's richest briefly, is equivalent to the economic bubble peaks when someone decides to build a new world's tallest skyscraper nicely timed with the next crash.

sah2ed 9y ago

My layman understanding is that investors think Amazon still has enormous room to grow because Amazon's current market share of the entire US retail industry (online + offline retail) is about 7%. The one thing that will make online shopping appealing to far more consumers is same-day and eventually 1-hr deliveries, irrespective of your location in the continental US and the only way to do this reliably is when fulfilment is automated end-to-end. For fulfilment to be fully automated, self-driving cars and trucks need to be a reality as that is the only way to cap shipping costs in order to guarantee Amazon's promise of low prices. In order words, investors think Amazon's market share will grow even more as distribution costs start to fall when the shift from human to self-driving trucks becomes economically and technologically feasible. Self-driving cars are still at least decade out, IMHO. Add another decade for regulations (e.g. which party is directly liable in X types of accidents?) and infrastructure (e.g. cooperative signalling, standardized charging stations etc) to catch up. This is why Jeff Bezos likes to stress that it is still Day 1 at Amazon.

saosebastiao 9y ago
I can guarantee you that the Day 1 phrase at Amazon has exactly 0% to do with driverless cars. And it is foolish to ascribe any singular viewpoint to investors in general. While some investors may hold the views you do, you’re likely suffering from a false consensus bias if you think your views are shared by anything more than a single digit percentage of investors in general or even specifically Amazon’s investors. As for the rest of your theory, I also think it is complete rubbish, but feel free to do with your money as you please.
- sah2ed 9y ago
  Sigh. You throw around words like foolish, bias, rubbish instead of providing a well reasoned counter argument. So all you have done is dish out a middle brow dismissal, well done.