5 ms·

Apple made more profit in three months than Amazon has generated in its lifetime

70 points by gscott 8y ago

_emacsomancer_ 8y ago
from the article: > One Wall Street analyst believes Amazon is still in the "early stages" in many of its key markets. With as many things as Amazon has its fingers into, it seems to me to have the potential to end up more profitably than Apple.
- gremlinsinc 8y ago
  amazon could one day rule all verticals, but if they decide to spend every penny growing even bigger, they'll still make less on paper than Apple, Amazon is in hyper growth mode all the time in a million different directions. Apple doesn't take as many risks and doesn't have their hands in as many things. Similar things could be said of Google/Alphabet as well, they seem to be doing business like Amazon.
- gscott 8y ago
  The solution would be for Apple to invest the profit into Amazon stock. Then take it over.
  - kgwgk 8y ago
    The solution to what problem?
    - gscott 8y ago
      The solution to Apple one day not having a hit product that drives revenue.
- innagadadavida 8y ago
  So does Walmart, it just has a bit of image and marketing issues, otherwise Walmart has a lot more potential than Amazon.
  - nhumrich 8y ago
    Walmart doesn't have it's fingers in nearly as many things. Cloud computing, autonomous vehicles, drones, ai, smart home tech, developer community, etc. Are all things Amazon has a leg in that Walmart has literally nothing.
    - toasterlovin 8y ago
      I'm not so confident that Amazon will continue to have fingers in so many things in the future. I think Amazon has figured out a pretty good formula for entering product categories that are relatively new, but we'll see if they can compete long term as more focused competitors arise. That being said, their utter dominance of retail and it's vertically related industries will probably continue for a long time. But I'm pretty skeptical of AI, smart home tech, autonomous vehicles, drones etc.
      - shaklee3 8y ago
        They failed at many things as well. Fire phone, fire tablet, etc.
        khc 8y ago
        Is fire tablet a fail?
    - joejerryronnie 8y ago
      Walmart is into quite a bit more than you realize.
    - innagadadavida 8y ago
      Microsoft will leverage its business relations to take high paying AWS customers and leave AWS to fight Google for small startups' business. Most of the drones are made in China, Amazon does nothing special with it. Also, with the increase in Prime fees, there will be many customers that will leave. Amazon has had an amazing stock run-up in the last 2-3 years, but stock is 6-7X overpriced compared too any of their peers. Also, Bezos is too smart for his own good, and has no succession plan.
- prewett 8y ago
  Amazon's retail business probably has a pretty low margin, and I'm not sure it can make it up in volume. Maybe AWS + Kindle make up for it, but I have my doubts. If you believe in efficient markets (which I, personally, think is bunk), then AMZN's 777B market cap to APPL's 926B means the Market doesn't think so, either. Apple has both large volume and high margins, which is a killer combination. On the other hand, I doubt Apple is going to grow much, whereas Amazon probably has some growth left.
  - _emacsomancer_ 8y ago
    Also, a lot of profitability is in Apple's high margins. If that ceases to be a sustainable model....
    - mrep 8y ago
      Which is why Apples P/E is so low compared to compared to other tech stocks which I think is totally reasonable. I just got a Pixel 2 and like it more than my old Iphone 6S. With Apples profits so heavily tied to continual sales of 1 main hardware product line, their profit can tank in just a few years and thus I consider very risky.
  - adventured 8y ago
    The math on their business is pretty straightforward. Extrapolate Amazon's retail business out to the size of Walmart, $500 billion. Assume extreme retail margins: 5% net income margins. $25 billion in profit, at max size, under the best case scenario Amazon will ever see. More likely, Amazon will never reach the retail size of Walmart today (inflation adjusted). A more likely number: maybe $12 to $15 billion in retail profit. Slap an optimistic valuation for the retail sector onto that: $240 to $300 billion valuation. Comparable to Walmart. Next, AWS at $60 to $80 billion in eventual sales, with 20%-25% margins, spitting off perhaps $15b-$20b in operating income. That business might end up worth $300b to $500b. All of Amazon's best case scenario growth for the next ten years, is already priced into the stock. That's what you would typically expect with a ~250 PE though.
Proven 8y ago
Goes to show just how useful and great company Apple is. People are willing to part with that much money because that’s how much value they get from owning those products. I currently have 2 (phone, pad). Amazon as a whole, on the other hand, hasn’t created remarkable products or services. Some of its business units have done well and have great products or services, but they are relatively minor as % of Amazon revenue. Amazon is a well run charity: if only the useless eaters from the government could learn to benefit its constituents without spending taxpayer money...
unstatusthequo 8y ago
Also recall Amazon purposely tries to “stay flush” with expenses and revenue, so naturally this article is true. Amazon sees to avoid taxes, and invests in avenues of expense that benefit it rather than benefitting the tax man. The theory being “how much tax to you pay on net zero income?”
- adventured 8y ago
  Is that also why Walmart and Costco have 2% net income margins? Or why Best Buy makes a whopping $1 billion on $42 billion in sales? Or Target with their fat 4% net income margins. No, it's because mainstream retail notoriously has horrific margins. There is no scenario where Amazon's retail business will ever generate meaningful margins such that it could be a profit juggernaut. It is not a tax dodge such that they could be yielding massive profits on retail, there is never going to be much profit in that segment. Right now the only way Amazon is yielding consequential profit, is courtesy of AWS, which does have good margins and is producing nearly all of Amazon's net income. The retail business - which makes up most of their business - at a standard 2%-4% net income retail margin on ~$140 billion in retail sales, is worth an optimistic $100 to $120 billion; you could push it to $150 billion if you want to give them a larger growth multiplier. First quarter AWS operating income: $1.4 billion First quarter total Amazon operating income: $1.9 billion All the profit-based value in Amazon is in AWS. Retail will always suck, without exception. That $500m in operating income on the rest of Amazon's $45 billion in sales, is not very far away from the margin you would expect to see on a mainstream retailer. $1b for that segment would be closer to normal if Amazon's growth were more settled (as in the case of Walmart & Target). In this case, that tiny retail profit is still be plowed back into dramatically higher growth than what Walmart or Target have.
  - Dwolb 8y ago
    Is your argument "Amazon is a retail business and Amazon doesn't yield high profits because retail businesses have low margins"? I guess that's true but so is OP's assertion that Amazon has a reputation for reinvesting would-be profits back into the business. By the way another way to look at Amazon is the retail business provides significant operating leverage to enable AWS to yield substantial profits.
dingaling 8y ago
> Apple is vastly more profitable than Amazon. And not a dime of that was paid to shareholders as dividends. So what does it matter? I once had a local businessman tell me that profit was a waste. You are such a poor leader that you can't find a way to reinvest that surplus in your company and its people? So you give a quarter of it to government and put the rest in the bank so they can use it to make themselves money? I'm not a fan of Mr Bezos but I think he has the right idea; if shareholders aren't demanding cash then take the opportunity to feed the net revenue back into the company. Some day the shareholders will wake-up...
- JumpCrisscross 8y ago
  > And not a dime of that was paid to shareholders as dividends Apple pays a dividend and has a massive stock buyback program.
- nerdwaller 8y ago
  I’m trying to understand what you’re going after here. AAPL has a fairly substantial dividend (it was the biggest in the world last year[0], and continues to be fairly substantial given the share price). If you’re talking about AMZN then it makes sense as they buy up more verticals, reinvesting any profits to growth. In either case the two companies are at different phases of their cycle. Apple is in the stable dividend mode while Amazon is still growing. Either could choose to change that, of course, but shareholders have expectations and to some extent both organizations are up to the whims of shareholder voting. [0] https://www.google.com/amp/s/www.cnbc.com/amp/2017/05/02/apple-now-pays-the-biggest-dividend-in-the-world-surpassing-exxon.html https://www.google.com/amp/s/www.cnbc.com/amp/2017/05/02/app...
tim333 8y ago
There's a difference between the start of the dictionary definition of profit a) noun 1. a financial gain and b) GAAP profits Amazon has made loads of a) and not much b). Perhaps not coincidentally b) are what you are taxed on. The financial gains made by shareholders in each over the last 5 years as reflected in increase in market cap are about the same for both - $626bn for apple, $648bn for amzn. For those not into accounting, roughly how it works is if your basic sales are $10bn, costs $8bn then you can put the $2bn in the bank (apple) or spend and expense it on stuff that will increase market share (amazon).
- sosborn 8y ago
  Apple doesn’t spend to increase market share. It spends to increase profit. People have a hard time understanding this.
- kgwgk 8y ago
  If you spend those $2bn in tangible (and in some cases intangible) stuff that is added to the balance sheet, you will still have $2bn of GAAP profit (and will be taxed on it). There are many ways to compare AAPL and AMZN. Another angle: one is trading at 5 times book value and the other at 25 times book value.
  - tim333 8y ago
    Yeah the trick is to spend the $2bn in ways which are expensed rather than added to the balance sheet such as marketing, price promotions and so on.
    - kgwgk 8y ago
      In you do “price promotions”, the sales are $8bn and the costs are $8bn. If you overspend on marketing your sales are $10bn and your costs are $10bn. It’s true that in those cases the profit is zero, so you won’t pay taxes. But it’s not obvious that this market share gain will result in much higher profits in the future. The trick is not guaranteed to work as intended.
- 8y ago
motohagiography 8y ago
Amazon is useful and makes good margins on economical services, where Apple basically defines middle class identity. Where Amazon is something you use, Apple makes something you identify as part of your personal story. Instagram has a similar play, where it is a platform for democratized celebrity, people "become," Instagram famous. Facebook is more of an individual signalling tool for people who have already won, or who just don't understand the game. To me FBs long game looks like a dystopian malignant Equifax. Oddly, Reddit has Instagram level upside if only they could hire someone with vision, and build an org that could execute on it instead of handwringing about solving political problems. Apple is a gatekeeper to aspiration, and the demand characteristics of that are unlimited. The stat in the article does not surprise me at all.
- deleted 8y ago
  [deleted]
BigTex420 8y ago
Economies. Of. Scale.
hungerstrike 8y ago
And yet, Amazon has given the world way more value than Apple could ever hope to in its lifetime. If Apple shut down tomorrow, nothing would really change. If Amazon shut down tomorrow, they’d bring down everybody.

70 points by gscott 8y ago

from the article: > One Wall Street analyst believes Amazon is still in the "early stages" in many of its key markets. With as many things as Amazon has its fingers into, it seems to me to have the potential to end up more profitably than Apple.

gremlinsinc 8y ago
amazon could one day rule all verticals, but if they decide to spend every penny growing even bigger, they'll still make less on paper than Apple, Amazon is in hyper growth mode all the time in a million different directions. Apple doesn't take as many risks and doesn't have their hands in as many things. Similar things could be said of Google/Alphabet as well, they seem to be doing business like Amazon.
gscott 8y ago
The solution would be for Apple to invest the profit into Amazon stock. Then take it over.
- kgwgk 8y ago
  The solution to what problem?
  - gscott 8y ago
    The solution to Apple one day not having a hit product that drives revenue.
innagadadavida 8y ago
So does Walmart, it just has a bit of image and marketing issues, otherwise Walmart has a lot more potential than Amazon.
- nhumrich 8y ago
  Walmart doesn't have it's fingers in nearly as many things. Cloud computing, autonomous vehicles, drones, ai, smart home tech, developer community, etc. Are all things Amazon has a leg in that Walmart has literally nothing.
  - toasterlovin 8y ago
    I'm not so confident that Amazon will continue to have fingers in so many things in the future. I think Amazon has figured out a pretty good formula for entering product categories that are relatively new, but we'll see if they can compete long term as more focused competitors arise. That being said, their utter dominance of retail and it's vertically related industries will probably continue for a long time. But I'm pretty skeptical of AI, smart home tech, autonomous vehicles, drones etc.
    - shaklee3 8y ago
      They failed at many things as well. Fire phone, fire tablet, etc.
      - khc 8y ago
        Is fire tablet a fail?
  - joejerryronnie 8y ago
    Walmart is into quite a bit more than you realize.
  - innagadadavida 8y ago
    Microsoft will leverage its business relations to take high paying AWS customers and leave AWS to fight Google for small startups' business. Most of the drones are made in China, Amazon does nothing special with it. Also, with the increase in Prime fees, there will be many customers that will leave. Amazon has had an amazing stock run-up in the last 2-3 years, but stock is 6-7X overpriced compared too any of their peers. Also, Bezos is too smart for his own good, and has no succession plan.
prewett 8y ago
Amazon's retail business probably has a pretty low margin, and I'm not sure it can make it up in volume. Maybe AWS + Kindle make up for it, but I have my doubts. If you believe in efficient markets (which I, personally, think is bunk), then AMZN's 777B market cap to APPL's 926B means the Market doesn't think so, either. Apple has both large volume and high margins, which is a killer combination. On the other hand, I doubt Apple is going to grow much, whereas Amazon probably has some growth left.
- _emacsomancer_ 8y ago
  Also, a lot of profitability is in Apple's high margins. If that ceases to be a sustainable model....
  - mrep 8y ago
    Which is why Apples P/E is so low compared to compared to other tech stocks which I think is totally reasonable. I just got a Pixel 2 and like it more than my old Iphone 6S. With Apples profits so heavily tied to continual sales of 1 main hardware product line, their profit can tank in just a few years and thus I consider very risky.
- adventured 8y ago
  The math on their business is pretty straightforward. Extrapolate Amazon's retail business out to the size of Walmart, $500 billion. Assume extreme retail margins: 5% net income margins. $25 billion in profit, at max size, under the best case scenario Amazon will ever see. More likely, Amazon will never reach the retail size of Walmart today (inflation adjusted). A more likely number: maybe $12 to $15 billion in retail profit. Slap an optimistic valuation for the retail sector onto that: $240 to $300 billion valuation. Comparable to Walmart. Next, AWS at $60 to $80 billion in eventual sales, with 20%-25% margins, spitting off perhaps $15b-$20b in operating income. That business might end up worth $300b to $500b. All of Amazon's best case scenario growth for the next ten years, is already priced into the stock. That's what you would typically expect with a ~250 PE though.

Proven 8y ago

Goes to show just how useful and great company Apple is. People are willing to part with that much money because that’s how much value they get from owning those products. I currently have 2 (phone, pad). Amazon as a whole, on the other hand, hasn’t created remarkable products or services. Some of its business units have done well and have great products or services, but they are relatively minor as % of Amazon revenue. Amazon is a well run charity: if only the useless eaters from the government could learn to benefit its constituents without spending taxpayer money...

unstatusthequo 8y ago

Also recall Amazon purposely tries to “stay flush” with expenses and revenue, so naturally this article is true. Amazon sees to avoid taxes, and invests in avenues of expense that benefit it rather than benefitting the tax man. The theory being “how much tax to you pay on net zero income?”

adventured 8y ago
Is that also why Walmart and Costco have 2% net income margins? Or why Best Buy makes a whopping $1 billion on $42 billion in sales? Or Target with their fat 4% net income margins. No, it's because mainstream retail notoriously has horrific margins. There is no scenario where Amazon's retail business will ever generate meaningful margins such that it could be a profit juggernaut. It is not a tax dodge such that they could be yielding massive profits on retail, there is never going to be much profit in that segment. Right now the only way Amazon is yielding consequential profit, is courtesy of AWS, which does have good margins and is producing nearly all of Amazon's net income. The retail business - which makes up most of their business - at a standard 2%-4% net income retail margin on ~$140 billion in retail sales, is worth an optimistic $100 to $120 billion; you could push it to $150 billion if you want to give them a larger growth multiplier. First quarter AWS operating income: $1.4 billion First quarter total Amazon operating income: $1.9 billion All the profit-based value in Amazon is in AWS. Retail will always suck, without exception. That $500m in operating income on the rest of Amazon's $45 billion in sales, is not very far away from the margin you would expect to see on a mainstream retailer. $1b for that segment would be closer to normal if Amazon's growth were more settled (as in the case of Walmart & Target). In this case, that tiny retail profit is still be plowed back into dramatically higher growth than what Walmart or Target have.
- Dwolb 8y ago
  Is your argument "Amazon is a retail business and Amazon doesn't yield high profits because retail businesses have low margins"? I guess that's true but so is OP's assertion that Amazon has a reputation for reinvesting would-be profits back into the business. By the way another way to look at Amazon is the retail business provides significant operating leverage to enable AWS to yield substantial profits.

dingaling 8y ago

> Apple is vastly more profitable than Amazon. And not a dime of that was paid to shareholders as dividends. So what does it matter? I once had a local businessman tell me that profit was a waste. You are such a poor leader that you can't find a way to reinvest that surplus in your company and its people? So you give a quarter of it to government and put the rest in the bank so they can use it to make themselves money? I'm not a fan of Mr Bezos but I think he has the right idea; if shareholders aren't demanding cash then take the opportunity to feed the net revenue back into the company. Some day the shareholders will wake-up...

JumpCrisscross 8y ago
> And not a dime of that was paid to shareholders as dividends Apple pays a dividend and has a massive stock buyback program.
nerdwaller 8y ago
I’m trying to understand what you’re going after here. AAPL has a fairly substantial dividend (it was the biggest in the world last year[0], and continues to be fairly substantial given the share price). If you’re talking about AMZN then it makes sense as they buy up more verticals, reinvesting any profits to growth. In either case the two companies are at different phases of their cycle. Apple is in the stable dividend mode while Amazon is still growing. Either could choose to change that, of course, but shareholders have expectations and to some extent both organizations are up to the whims of shareholder voting. [0] https://www.google.com/amp/s/www.cnbc.com/amp/2017/05/02/apple-now-pays-the-biggest-dividend-in-the-world-surpassing-exxon.html https://www.google.com/amp/s/www.cnbc.com/amp/2017/05/02/app...

tim333 8y ago

There's a difference between the start of the dictionary definition of profit a) noun 1. a financial gain and b) GAAP profits Amazon has made loads of a) and not much b). Perhaps not coincidentally b) are what you are taxed on. The financial gains made by shareholders in each over the last 5 years as reflected in increase in market cap are about the same for both - $626bn for apple, $648bn for amzn. For those not into accounting, roughly how it works is if your basic sales are $10bn, costs $8bn then you can put the $2bn in the bank (apple) or spend and expense it on stuff that will increase market share (amazon).

sosborn 8y ago
Apple doesn’t spend to increase market share. It spends to increase profit. People have a hard time understanding this.
kgwgk 8y ago
If you spend those $2bn in tangible (and in some cases intangible) stuff that is added to the balance sheet, you will still have $2bn of GAAP profit (and will be taxed on it). There are many ways to compare AAPL and AMZN. Another angle: one is trading at 5 times book value and the other at 25 times book value.
- tim333 8y ago
  Yeah the trick is to spend the $2bn in ways which are expensed rather than added to the balance sheet such as marketing, price promotions and so on.
  - kgwgk 8y ago
    In you do “price promotions”, the sales are $8bn and the costs are $8bn. If you overspend on marketing your sales are $10bn and your costs are $10bn. It’s true that in those cases the profit is zero, so you won’t pay taxes. But it’s not obvious that this market share gain will result in much higher profits in the future. The trick is not guaranteed to work as intended.
8y ago

motohagiography 8y ago

Amazon is useful and makes good margins on economical services, where Apple basically defines middle class identity. Where Amazon is something you use, Apple makes something you identify as part of your personal story. Instagram has a similar play, where it is a platform for democratized celebrity, people "become," Instagram famous. Facebook is more of an individual signalling tool for people who have already won, or who just don't understand the game. To me FBs long game looks like a dystopian malignant Equifax. Oddly, Reddit has Instagram level upside if only they could hire someone with vision, and build an org that could execute on it instead of handwringing about solving political problems. Apple is a gatekeeper to aspiration, and the demand characteristics of that are unlimited. The stat in the article does not surprise me at all.

deleted 8y ago
[deleted]

BigTex420 8y ago

Economies. Of. Scale.

hungerstrike 8y ago

And yet, Amazon has given the world way more value than Apple could ever hope to in its lifetime. If Apple shut down tomorrow, nothing would really change. If Amazon shut down tomorrow, they’d bring down everybody.