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There reality of current equity valuations is such that, if sustained, there is some some pretty savage consolidation to come. The only limit is antitrust, or f
by dalbasal 5y ago
There reality of current equity valuations is such that, if sustained, there is some some pretty savage consolidation to come. The only limit is antitrust, or fear of.
$9bn is 0.5% of AMZN's current market cap, so $9bn represents a daily price fluctuation. They also have $45bn in cash reserves, so amazon could buy 5 MGMs without borrowing or issuing stock.
That's not even a lot! Apple, Google & FB have $200bn, $140bn & $65bn respectively. Dividends don't seem to be a thing, and it's basically impossible to invest this much cash internally. These companies don't have factories to build, or any kind of hard capital investments to make. Even an epic, blue sky cash sink like Waymo isn't capable of burning through their available capital, nevermind credit. Large capital investment at meaningful scale is not part these companies' culture, or competencies.
Acquisition is the only thing they can do, besides buying bitcoin and vanguard. Meanwhile, acquisitions bid up prices and exasperate the scenario further.
Morals and regulatory potential aside, does it not make sense for Tesla to buy and bury one or two major auto manufacturers? Ford is worth $50bn, GM is $80bn. Tesla is $600bn. Why bother competing?
^I'm purposely overstating, to make the provocative point... especially in regards to Tesla, who have no cash and other ways of doing capital investment anyway. Obviously, there is debt financing and other factors that complicate all of this.
- vmception 5y agoWhat’s the provocative part? I like the insight. What you are saying is that liquidity needs to get much deeper to account for all the currency made available and consolidated.
- donavanm 5y ago> Large capital investment at meaningful scale is not part these companies' culture, or competencies. Am I missing something? The latest Amzn 10-Q shows $45B of “Purchases of property and equipment” $11B in lease principal payments in the past year. That’s on the $42B cash on hand and $26.9B net income. Cash flow and capital investment seems like the crank Amazon has been turning for 20 years?
- xkjkls 5y agoI think he means that Amazon isn't really an acquirer. Other than Whole Foods, I think their next biggest acquisition is Twitch? That's only two total acquisitions over ~1 billion over Amazon's entire history. For what is currently the largest market cap on earth, that's pretty shocking.
- kongolongo 5y agoZappos and Zoox were also both $1 billion acquisitions by Amazon Why only consider acquisitions over $1 billion though? They have quite a few $250 million+ acquisitions that were pretty big or key players in their respective niches.
- xkjkls 5y agoBecause a billion is a nice round number, and if you compare to other companies the same size, they've had a remarkably small number of acquisitions. Google has had Youtube, DoubleClick, Android, Motorola, Nest, HTC, Nest, Looker, Fitbit, Waze... and that's just what I remember. Facebook has had at least Instagram, WhatsApp and Oculus, but they've been around close to two decades less. For a company of Amazon's scale, it's lack of acquisitions is relatively surprising.
- iso1631 5y agoIt seems the smart move in today's market is to acquire an organization for free with a leveraged buyout.
- vishnugupta 5y agoAmazon always has and continues to invest internally to expand e.g., new AWS regions, warehouse automation through robotics most of which are extremely capital intensive. Though your observation is right that MGM acquisition does make sense for Amazon because they OK to pay a premium to fast-track expanding their media business. The way I see it, Amazon, as a growth machine, keeps its growth options (organic/inorganic) open and when sees an opportunity for inorganic growth they will go for it. The most recent example being their acquisition of Whole Foods. They were anyway investing in growing their brick-and-mortar presence and opportunistically acquired Whole Foods to fast-track it. Relatedly, Amazon has to be one of the most diverse corporations ever. From AWS to media studio. Which other corporations come close?
- scottyah 5y agoEastern companies like yamaha and hyaundai. dirtbikes to pianos, cars to housing
- mattnewton 5y agoThat was my first thought, specifically the South Korean Chaebols like Samsung
- dehrmann 5y ago> dirtbikes to pianos Yamaha's logo is three tuning forks. Always cracks me up seeing that on a dirtbike.
- sehugg 5y agoMotorcycles have forks too, but if they resonate at 440 Hz you have got issues...
- orky56 5y agoGood point. The Korean Chaebol [1] is all about the conglomerate. [1]https://en.wikipedia.org/wiki/Chaebol https://en.wikipedia.org/wiki/Chaebol
- throwaway1777 5y agoApple does offer a dividend fwiw. The others often use cash for share buybacks which is part of why the price is so high. So it’s not entirely like they just let the money sit there.
- benmller313 5y agoI don't think Amazon has done stock buy backs in almost 10 years.
- xkjkls 5y agoIf you discount the automatic stock buybacks they do to compensate for employee stock bonuses this is true. But that is still a pretty large amount of money over the past decade.
- dalbasal 5y agoTrue, this is why I offered that caveat at the end. None of what I said is true in an absolute sense. Whether or not they pay dividends or buy back stock, the average net is large. That's why they've accumulated these record busting sums.
- tablespoon 5y ago> That's not even a lot! Apple, Google & FB have $200bn, $140bn & $65bn respectively. Dividends don't seem to be a thing, and it's basically impossible to invest this much cash internally. These companies don't have factories to build, or any kind of hard capital investments to make. Apple arguably does have factories to build, given how utterly dependent on China it is.
- UncleOxidant 5y agoThis. Apple should be looking into buying a semiconductor company and building more fabs. Preferably US based. Maybe Micron or TI. Micron's market cap is ~90B. TI's is about ~170B, so probably Micron.
- cle 5y agoHonestly I would be sad to see vertical consolidation like that. But given all the hype around M1 and the translation to $$$, it wouldn't surprise me.
- kodah 5y agoI really would hate to see Texas Instruments bought and buried by a coastal company. The Midwest really needs some of its own tech giants to drive their economies. I suspect TI would be absent from North Texas if Apple bought them or they'd participate in the typical nastiness of moving all engineering to the coast and leaving sales and marketing in it's wake.
- duped 5y agoMajor nitpick but Texas is most certainly not part of the midwest. And acquisition is the wrong thing to fear, backwards economic policies and divestment from urban centers and education while labor protections even for high skilled employees continue to be eroded are system problems outside of the coastal hubs. Texans and midwesterners should be afraid of how their governments are dropping the ball, not of coastal companies buying out the locals. But the bigger scare of TI being acquired is that they are a major manufacturer of commodity components and Apple is a vertically integrated consumer electronics business. It would be devastating to American semiconductor marketplace if their portfolio was no longer available.
- efficax 5y agodatacenters for all 4 are a huge capital investment. Perhaps less so for Apple, but Amazon, Google and Facebook all run their own datacenters and all of them will have to continue expanding their datacenter footprint if they continue to grow. That being said, it does seem like equity markets are in a bubble. Tesla at least is absurdly overvalued. If i had signifcant stake in TSLA I would be getting out asap and let someone else hold on to shares that are probably 300% overvalued.
- dalbasal 5y agoHuge yes. Huge relative to amzn & apple is a different matter.
- ebiester 5y agoAmazon shares, relative to revenue, were absurdly overvalued for over a decade. Then they weren't. The argument for Tesla, much like Uber, is that they are going to figure out the rest. It's really almost a faith based investment, either way.
- SyzygistSix 5y agoAmazon could pay and treat their employees better. That would be an investment that would make me consider using their service again.
- dalbasal 5y agoTechnically that'd be a cost, not an investment.
- olyjohn 5y agoAnd we've found the problem...
- influx 5y agoAmazon already pays their Warehouse workers $15/hour or more. How much should they get paid?
- stagger87 5y agoI'd start with something livable.
- subsaharancoder 5y ago> I'd start with something livable Define "livable" in the context of wages
- stagger87 5y agoThis term is already defined. https://en.wikipedia.org/wiki/Living_wage https://en.wikipedia.org/wiki/Living_wage https://livingwage.mit.edu/ https://livingwage.mit.edu/
- SyzygistSix 5y ago$15 would be a realistic minimum wage in many places. And they can treat their workers better. Costco is a good example of how to treat workers.
- vineyardmike 5y ago> That's not even a lot! Apple, Google & FB have $200bn, $140bn & $65bn respectively. Dividends don't seem to be a thing, and it's basically impossible to invest this much cash internally. These companies don't have factories to build, or any kind of hard capital investments to make. What about data centers?
- dalbasal 5y agoAll of this is relative to those companies' scale. They do, naturally, have capital investments to make. These just aren't enough to utilize their available capital, currently.