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Price/Sales is 4.01, lower than GOOG, FB or MSFT. They are going for growth, not profit. No valuation metric is perfect, but P/E is particularly useless for thi

Price/Sales is 4.01, lower than GOOG, FB or MSFT. They are going for growth, not profit. No valuation metric is perfect, but P/E is particularly useless for this company.

mythz 7y ago
They're not a Startup, they've been "going for growth" for a 1/4 of a century, eventually you need to make a profit to justify your Market Cap. Just because profit isn't a goal for AMZN doesn't mean it's not a vital financial metric.
- brlewis 7y ago
  You've presented a concise and valid set of statements that argue that a 100 P/E ratio might be expensive, but don't justify calling it insanely expensive.
- djakjxnanjak 7y ago
  Revenue is up 20% year over year. The growth is real, not just a goal.
  - mythz 7y ago
    Only 20% is why the stock is down after hours, at 100 P/E AMZN is speculatively priced where they're expected to achieve infinite growth until they deliver financials that justify their valuation which Investors are betting on to happen before they hit any growth ceiling. There's also no room for an economy downturn which expensive stocks like AMZN are extremely volatile to.
    - eloff 7y ago
      Growing 20% at Amazon's size is why the stock is worth so much. Almost all companies have slowed down long before this point. Amazon is still growing like a late stage startup. It's really a remarkable feat.
      - mythz 7y ago
        Are Facebook, Google, Microsoft also still considered late stage Startups? FB Growth 28% YoY, P/E 26.51, Mkt Cap 573B GOOG Growth 19% YoY, P/E 25.90, Mkt Cap 788B MSFT Growth 12%, P/E 27.69, Mkt Cap 1.07T They all have a much more reasonable P/E. Agreed that it's harder to achieve growth from a massive base, but they're also priced from being able to continue doing so much better than their competitors.
        eloff 7y ago
        It's pretty meaningless to look at P/E for tech companies and compare it to a retail company. But for those companies it's also pretty impressive, market beating growth.
        mythz 7y ago
        > It's pretty meaningless to look at P/E for tech companies and compare it to a retail company. Tech stocks usually have higher P/E's than retailers, but for comparison here are the P/E Ratios of the world's largest retailers: WMT 38.8 COST 34.33 KG 9.24 WBA 10.75 HD 21.73 TGT 15.39
        eloff 7y ago
        Yes, but now look at their growth as well and you'll understand Amazon's valuation is not wholly out of line.
        mythz 7y ago
        > Yes, but now look at their growth as well and you'll understand Amazon's valuation is not wholly out of line. Then please lay out your understanding of what justifies AMZN's price in your eyes as you've yet to quote a single figure. The only reason why WMT's P/E is so high (and their Market Cap doubled in since 2016) is because of their success in their e-commerce business which saw 37% growth YoY. You've been saying AMZN is a retail business whose financials can't be compared to Tech stocks which is clearly untrue, AMZN's retail business is less than 1/2 the size of Walmart yet they're worth 3x more who would've been worth even more if they didn't give out dividends which AMZN can't dream of doing at their current valuation.
- nicoburns 7y ago
  I don't understand why companies don't just let there stock price fall. This makes no material difference to the operating of the company, right?
  - changoplatanero 7y ago
    Rising stock price is helpful for retaining high value employees that are compensated with stock
    - nicoburns 7y ago
      I guess. You could just pay them more though.
      - allthecybers 7y ago
        > I guess. You could just pay them more though. This is a good idea. Stop the stock game and just pay a set base salary = to comp + stock. But we can’t do that because that would take all the fun out of seeing part of your potential income fluctuate with the whims and buffoonery of Wall Street.
    - deleted 7y ago
      [deleted]
  - mythz 7y ago
    Shareholders own companies and a rising stock price benefits shareholders who elect the board members that run said company, a falling stock price isn't in anyone's interest who are invested in the company. It does help with M&A, raising capital, employee stock options + bonuses. It's rare, but sometimes you'll hear company Investors saying that their stock price is too high, like Zoom's CEO [1]. [1] https://www.bloomberg.com/news/articles/2019-04-18/zoom-video-soars-to-16-billion-valuation-in-u-s-trading-debut https://www.bloomberg.com/news/articles/2019-04-18/zoom-vide...
    - nicoburns 7y ago
kgwgk 7y ago
Comparing their price to sales ratio with that of companies in different businesses doesn’t make much sense either.
pmart123 7y ago
P/S is also hard to use unless you did that for just AWS. Better to look at price to operating cash flow and better yet to capitalize R&D and leases.
xkjkls 7y ago
A huge part of Amazon's business is retail where it never is going to have the same margins as any of the tech companies you listed. It's not really useful to compare Price/Sales in those contexts.
YZF 7y ago
PEG EDIT: https://en.wikipedia.org/wiki/PEG_ratio https://en.wikipedia.org/wiki/PEG_ratio
MR4D 7y ago
P/E is NEVER useless. For instance, if a company misses on earnings, then maybe it was an outlier - an odd quarter of sorts. But if you do it a few times over, then you are not the growth company you thought you were, and your 100:1 p/e will come crashing down to join everybody else (albeit maybe on the high side) somewhere in the upper 20’s or in the 30’s. But here’s the key - to do that, a stock would have to lose TWO THIRDS of it’s value. So a really high p/e signals really high growth expectations, and when a company isn’t growing at that expectation, the law of gravity again takes control and it will fall back to earth. Ignore it at your own peril.
- jjeaff 7y ago
  But you are assuming that the end goal of the company and purpose of buying the stock is to participate in "earnings" in the form of dividends. But that is no longer the MO of many public companies now. The goal appears to just eternally grow the stock price and allow share holders to cash out in the form of appreciated shares which get a preferable capital gains tax treatment. Occasional earnings are just there to prove to the market that you could make money if you wanted to. Amazon has never paid dividends and probably never will unless their shareholders are able to convince them otherwise. To take it even further, there are additional tax advantages to capital appreciation for the wealthy that hold Amazon stock. They can even choose not to sell appreciated stock but instead get low interest loans using their stock as collateral. Buy stock - let it appreciate - increase your line of credit - live off the borrowed money that has a lower interest rate than the stock price growth rate - continue until death - let estate sell the stock and take a one time tax hit.
  - kgwgk 7y ago
    You are the one conflating dividends and earnings. Even if a company chooses to reinvest retained earnings instead of returning cash to investors [1] it’s good to be profitable. Not just “to prove that you could”, but to avoid being just a money-burning machine (not Amazon’s case, mind you; they do not have “occasional earnings”, they’ve been consistenly profitable for the last 15 years). [1] Either through dividends or through buybacks. The second option has some advantages relative to dividends and results in capital gains for the investors that choose to sell.
m3kw9 7y ago
PE is used as a comparison, if 10 of your peers are at 15 and you are at 30 you may be over priced or the expectations are sky high for you to grow beyond expectations
- dahfizz 7y ago
  Amazon and e.g Google are not peers. The vast majority of Amazons business is retail, not tech.
  - jjeaff 7y ago
    That's up for debate. Of the revenues that are reported under Amazon retail, a significant portion (some estimates say way more than half) are fees collected from 3rd party sellers using both the online platform and physical warehousing services. I would argue that portion of their retail revenue is much closer to tech than retail, considering the margins are comparable to tech companies.

Price/Sales is 4.01, lower than GOOG, FB or MSFT. They are going for growth, not profit. No valuation metric is perfect, but P/E is particularly useless for this company.

mythz 7y ago

They're not a Startup, they've been "going for growth" for a 1/4 of a century, eventually you need to make a profit to justify your Market Cap. Just because profit isn't a goal for AMZN doesn't mean it's not a vital financial metric.

brlewis 7y ago
You've presented a concise and valid set of statements that argue that a 100 P/E ratio might be expensive, but don't justify calling it insanely expensive.
djakjxnanjak 7y ago
Revenue is up 20% year over year. The growth is real, not just a goal.
- mythz 7y ago
  Only 20% is why the stock is down after hours, at 100 P/E AMZN is speculatively priced where they're expected to achieve infinite growth until they deliver financials that justify their valuation which Investors are betting on to happen before they hit any growth ceiling. There's also no room for an economy downturn which expensive stocks like AMZN are extremely volatile to.
  - eloff 7y ago
    Growing 20% at Amazon's size is why the stock is worth so much. Almost all companies have slowed down long before this point. Amazon is still growing like a late stage startup. It's really a remarkable feat.
    - mythz 7y ago
      Are Facebook, Google, Microsoft also still considered late stage Startups? FB Growth 28% YoY, P/E 26.51, Mkt Cap 573B GOOG Growth 19% YoY, P/E 25.90, Mkt Cap 788B MSFT Growth 12%, P/E 27.69, Mkt Cap 1.07T They all have a much more reasonable P/E. Agreed that it's harder to achieve growth from a massive base, but they're also priced from being able to continue doing so much better than their competitors.
      - eloff 7y ago
        It's pretty meaningless to look at P/E for tech companies and compare it to a retail company. But for those companies it's also pretty impressive, market beating growth.
        mythz 7y ago
        > It's pretty meaningless to look at P/E for tech companies and compare it to a retail company. Tech stocks usually have higher P/E's than retailers, but for comparison here are the P/E Ratios of the world's largest retailers: WMT 38.8 COST 34.33 KG 9.24 WBA 10.75 HD 21.73 TGT 15.39
        eloff 7y ago
        Yes, but now look at their growth as well and you'll understand Amazon's valuation is not wholly out of line.
        mythz 7y ago
        > Yes, but now look at their growth as well and you'll understand Amazon's valuation is not wholly out of line. Then please lay out your understanding of what justifies AMZN's price in your eyes as you've yet to quote a single figure. The only reason why WMT's P/E is so high (and their Market Cap doubled in since 2016) is because of their success in their e-commerce business which saw 37% growth YoY. You've been saying AMZN is a retail business whose financials can't be compared to Tech stocks which is clearly untrue, AMZN's retail business is less than 1/2 the size of Walmart yet they're worth 3x more who would've been worth even more if they didn't give out dividends which AMZN can't dream of doing at their current valuation.
nicoburns 7y ago
I don't understand why companies don't just let there stock price fall. This makes no material difference to the operating of the company, right?
- changoplatanero 7y ago
  Rising stock price is helpful for retaining high value employees that are compensated with stock
  - nicoburns 7y ago
    I guess. You could just pay them more though.
    - allthecybers 7y ago
      > I guess. You could just pay them more though. This is a good idea. Stop the stock game and just pay a set base salary = to comp + stock. But we can’t do that because that would take all the fun out of seeing part of your potential income fluctuate with the whims and buffoonery of Wall Street.
  - deleted 7y ago
    [deleted]
- mythz 7y ago
  Shareholders own companies and a rising stock price benefits shareholders who elect the board members that run said company, a falling stock price isn't in anyone's interest who are invested in the company. It does help with M&A, raising capital, employee stock options + bonuses. It's rare, but sometimes you'll hear company Investors saying that their stock price is too high, like Zoom's CEO [1]. [1] https://www.bloomberg.com/news/articles/2019-04-18/zoom-video-soars-to-16-billion-valuation-in-u-s-trading-debut https://www.bloomberg.com/news/articles/2019-04-18/zoom-vide...
  - nicoburns 7y ago

kgwgk 7y ago

Comparing their price to sales ratio with that of companies in different businesses doesn’t make much sense either.

pmart123 7y ago

P/S is also hard to use unless you did that for just AWS. Better to look at price to operating cash flow and better yet to capitalize R&D and leases.

xkjkls 7y ago

A huge part of Amazon's business is retail where it never is going to have the same margins as any of the tech companies you listed. It's not really useful to compare Price/Sales in those contexts.

YZF 7y ago

PEG EDIT: https://en.wikipedia.org/wiki/PEG_ratio https://en.wikipedia.org/wiki/PEG_ratio

MR4D 7y ago

P/E is NEVER useless. For instance, if a company misses on earnings, then maybe it was an outlier - an odd quarter of sorts. But if you do it a few times over, then you are not the growth company you thought you were, and your 100:1 p/e will come crashing down to join everybody else (albeit maybe on the high side) somewhere in the upper 20’s or in the 30’s. But here’s the key - to do that, a stock would have to lose TWO THIRDS of it’s value. So a really high p/e signals really high growth expectations, and when a company isn’t growing at that expectation, the law of gravity again takes control and it will fall back to earth. Ignore it at your own peril.

jjeaff 7y ago
But you are assuming that the end goal of the company and purpose of buying the stock is to participate in "earnings" in the form of dividends. But that is no longer the MO of many public companies now. The goal appears to just eternally grow the stock price and allow share holders to cash out in the form of appreciated shares which get a preferable capital gains tax treatment. Occasional earnings are just there to prove to the market that you could make money if you wanted to. Amazon has never paid dividends and probably never will unless their shareholders are able to convince them otherwise. To take it even further, there are additional tax advantages to capital appreciation for the wealthy that hold Amazon stock. They can even choose not to sell appreciated stock but instead get low interest loans using their stock as collateral. Buy stock - let it appreciate - increase your line of credit - live off the borrowed money that has a lower interest rate than the stock price growth rate - continue until death - let estate sell the stock and take a one time tax hit.
- kgwgk 7y ago
  You are the one conflating dividends and earnings. Even if a company chooses to reinvest retained earnings instead of returning cash to investors [1] it’s good to be profitable. Not just “to prove that you could”, but to avoid being just a money-burning machine (not Amazon’s case, mind you; they do not have “occasional earnings”, they’ve been consistenly profitable for the last 15 years). [1] Either through dividends or through buybacks. The second option has some advantages relative to dividends and results in capital gains for the investors that choose to sell.

m3kw9 7y ago

PE is used as a comparison, if 10 of your peers are at 15 and you are at 30 you may be over priced or the expectations are sky high for you to grow beyond expectations

dahfizz 7y ago
Amazon and e.g Google are not peers. The vast majority of Amazons business is retail, not tech.
- jjeaff 7y ago
  That's up for debate. Of the revenues that are reported under Amazon retail, a significant portion (some estimates say way more than half) are fees collected from 3rd party sellers using both the online platform and physical warehousing services. I would argue that portion of their retail revenue is much closer to tech than retail, considering the margins are comparable to tech companies.