5 ms·

Amazon is pumping out 40% YOY growth rates which Dell is not. Long term ain't so long term when your company doubles in size every 2 years.

by mrep 8y ago

mcguire 8y ago
To have a more traditional valuation, Amazon would have to have a GDP roughly the size of Russia (https://news.ycombinator.com/item?id=17691875 https://news.ycombinator.com/item?id=17691875), (https://en.m.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29?wprov=sfla1 https://en.m.wikipedia.org/wiki/List_of_countries_by_GDP_%28...)
- adventured 8y ago
  No it wouldn't. Amazon's operating income is up to an annualized $10 billion now. Their profitability has exploded higher in the last three years (thanks heavily to AWS), drastically out of ratio with their sales growth. Another three years from now, their operating income will very likely be up to $20-$25 billion (I'm using operating income here because of recent rule changes on what's included in net income). That would still be a rich multiple on today's market cap, no question. There's a massive gap between AMZN having a 40 or 60 PE ratio (ie a very rich multiple), and your claim that they'd need ~$1.5 trillion in revenue (Russia's nominal GDP for 2017) to justify their valuation. Amazon's net income margin now exceeds Walmart's and is heading higher due to the fat margins of AWS. At $400 billion in sales (five to seven years out), they'll very reasonably be able to generate $30 billion in net income (old net income calculation) on the path they're on. At $30b in net income, you're talking a ~30 PE ratio at today's market cap (ie a traditional valuation), and it requires nothing even remotely like an equivalent to Russia's GDP. Microsoft and Google both routinely sport valuations that are 30x multiples of earnings (as do dozens of large tech firms). The issue with Amazon, is that their future returns have been pulled forward, not whether they can ever justify a $900b market cap with a traditional multiple.

Amazon is pumping out 40% YOY growth rates which Dell is not. Long term ain't so long term when your company doubles in size every 2 years.

by mrep 8y ago

Amazon is pumping out 40% YOY growth rates which Dell is not. Long term ain't so long term when your company doubles in size every 2 years.

mcguire 8y ago

To have a more traditional valuation, Amazon would have to have a GDP roughly the size of Russia (https://news.ycombinator.com/item?id=17691875 https://news.ycombinator.com/item?id=17691875), (https://en.m.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29?wprov=sfla1 https://en.m.wikipedia.org/wiki/List_of_countries_by_GDP_%28...)

adventured 8y ago
No it wouldn't. Amazon's operating income is up to an annualized $10 billion now. Their profitability has exploded higher in the last three years (thanks heavily to AWS), drastically out of ratio with their sales growth. Another three years from now, their operating income will very likely be up to $20-$25 billion (I'm using operating income here because of recent rule changes on what's included in net income). That would still be a rich multiple on today's market cap, no question. There's a massive gap between AMZN having a 40 or 60 PE ratio (ie a very rich multiple), and your claim that they'd need ~$1.5 trillion in revenue (Russia's nominal GDP for 2017) to justify their valuation. Amazon's net income margin now exceeds Walmart's and is heading higher due to the fat margins of AWS. At $400 billion in sales (five to seven years out), they'll very reasonably be able to generate $30 billion in net income (old net income calculation) on the path they're on. At $30b in net income, you're talking a ~30 PE ratio at today's market cap (ie a traditional valuation), and it requires nothing even remotely like an equivalent to Russia's GDP. Microsoft and Google both routinely sport valuations that are 30x multiples of earnings (as do dozens of large tech firms). The issue with Amazon, is that their future returns have been pulled forward, not whether they can ever justify a $900b market cap with a traditional multiple.