They believe Amazon has a greater chance of being in the same or stronger position in 12 - 24 months relative to their competitors...
This article is generally good, but this bit is wrong. The markets believe Amazon will be in a stronger position in 12-24 months. Relative to competitors is mostly irrelevant - if Amazon is the last man standing, but has shrunk 50%, you still lost 50%. Similarly, if amazon grows 100% but it's competitor grows 200%, you still doubled your money.
(The only place where "relative to competitors" matters is if you have some reason to throw a fixed amount of money into a sector, but you are free to pick the best of the sector.)
Relative to competitors is mostly irrelevant - if Amazon is the last man standing, but has shrunk 50%, you still lost 50%.
Yeah, but if you are primarily wondering where to put your money, it is relevant! If it's "Invest in Amazon" vs. "Invest in Amazon competitor", Amazon outperforming the competitor is much more important than Amazon's absolute performance.
Not if you believe in variety. Unless you believe e-retail is fundamentally doomed, if you want diversity in your investments you ought to have at least some holdings in e-retail, even if BP is outperforming Amazon.
In general, investing in consumer facing stocks is not desirable. They are subject to greater volatility, and more people believe they understand your business because they are consumers of your product which can lead to further distortions in share price (to the positive or negative side).
As an aside, I think looking into mining, deep water drilling, pipeline and transportation stocks would be more lucrative. As an amateur investor, I put my money where my mouth is this summer:
I think in Apple's case, strength relative to competition is a little redundant because if you're buying an Android tablet, then you're generally not buying a Apple tablet.
In Amazon's case, on the other hand, a lot of people consider their competition to be Walmart. Still, I (and many other consumers) shop from both places simultaneously.
Amazon can get stronger without Walmart getting weaker; I wouldn't really say the same about Apple and Apple's competition.
Set aside Apple altogether. Let's just consider Amazon.
Where is Amazon going to suddenly start making money to justify its market cap? Suddenly increase prices and thus profit margins? Their competitors will eat them alive. Grow their business? Who isn't shopping online with Amazon already? It's just nutty. Their entire business plan is selling razor blade handles at a loss so they can sell you razors at a wafer thin margin.
Amazon is the last part of the 1990s bubble that keeps going simply because it's run very efficiently.
Oh and if the states ever get the balls to tax Amazon based on its affiliate network it has no margin to operate at all.
>Grow their business? Who isn't shopping online with Amazon already?
The vast majority of retail purchases are not conducted through Amazon. Just look at Walmart's revenue compared to Amazon's. There is plenty of room to grow.
You're right that we could all buy everything online in theory, but this seems implausible and inefficient. Amazon is alreaspdy selling stuff online (e.g. Cat litter and toilet paper) that do not make economic sense. In any event, Amazon's share price has priced in something like a one hundred fold growth in profit (for those odd quarters where it actually makes a profit).
Anecdote: my girlfriend has never bought anything off Amazon. She did just spend ~500 on a bunch of clothes online though.
Also, in terms of Amazon's electronic offerings (music, app store, movies, a surprisingly large amount of the Kindle catalogue etc) none of that is available outside the US and a couple of other markets, so they have lots of room to grow still.
>Where is Amazon going to suddenly start making money to justify its market cap? Suddenly increase prices and thus profit margins? Their competitors will eat them alive. Grow their business? Who isn't shopping online with Amazon already? It's just nutty. Their entire business plan is selling razor blade handles at a loss so they can sell you razors at a wafer thin margin.
Amazon has its challenges, but so does Google, Apple, Microsoft and every other corporations in existence. As for growth, there's plenty of opportunities for Amazon. They have their nascent streaming media business, digital goods (like books) to sell, grow their tablet and phone (?) business, build out AWS and cloud services and continue growing their online-retail market share domestically and internationally.
Blame your countries customs. I can only assume they make imports inconvenient on purpose. We have avoided marketing to brazil as shipping times are extremely variable if they arrive at all.
For example here to import a car you must be a company with special permit.
You cannot drive a car across the border and keep it.
The result is that the Brazillian astra in Brazil costs 25k USD. That same car, from the same factory in Argentina is 15K and has better engine and airbags (the Brazillian version you need to pay separately to have airbags)
> Where is Amazon going to suddenly start making money to justify its market cap?
This question seems to be asked a lot, and I don't think people understand what they're asking. Market cap is shares times share price. That's all it is. You can use it as a proxy for net worth, but you don't have to.
It's what you are paying for % ownership of the business. Isn't that exactly what you should care about? If you buy a new house do you care about the "share price" or how much the house costs? If you can rent it out for $100 year would you buy it for $100B?
I think the problem described in this post is easily explained by information given at the very beginning: His developer friends posting things on twitter from Apple-made devices.
His developer friends is still living in the bubble that Apple is cool, Apple is leading the pack, Apple is the future. They get offended when someone hints the world is not so.
All the stats, you know cold facts, speak the other way though: Apple, or at least iOS, has seriously peaked and the only way is down now. Soon into sub-10% marketshare.
And with such a dismall marketshare, will it be able to hold on to developers? As we've seen with BlackBerry and Windows Phone... What good does the hardware and OS do without a good ecosystem?
Apple's ecosystem is at a risk of starting to fall apart. And if that happens, iOS and related devices, now accounting for more than 50% of Apple's income, risks collapsing too.
Shareholders see this major risk. And they weight this risk against potential for new, revolutionary products in the future. This value proposition is not good.
Amazon on the other hand. Amazon is killing it. In every single field they enter. Nobody can compete with them in any field they decide to enter.
And they just seem to find new fields to enter all the time, and they leverage everything they do as a service they can sell to others who want to achieve the same.
For future value, there's no doubt Amazon is the good bet.
@josteink you have any stats that back up your assertion that iOS is headed "soon into sub 10% marketshare"?
I didn't think so.
Anyway, I think the market is convinced Apple can't grow earnings much any more. And the market is probably right. Law of large numbers has taken effect.
But this notion that iOS is getting crushed and is headed into oblivion is a product of the simplistic "winner take all" mentality. Just because it happened with Windows doesn't mean it happens with mobile - or anything else for that matter.
> @josteink you have any stats that back up your assertion that iOS is headed "soon into sub 10% marketshare"?
Basic extrapolation. You can take the platforms' relative market-share and see if you spot the trend.
Apple's worldwide market-share has plunged from 50% to 14% in just a couple of years [1]. Android's intake on the market has been so aggressive even Apple is having a hard time keeping up.
Now, to be fair, these numbers are for smart-phones only and not for tablets, so the numbers dont represent the full truth. Right now Apple is definitely leading in tablet-space. But that was also the story for iPhone vs Android-phones a few years back. Android-phones were considered sub-par and iPhones the best of breed.
Where are we now though? Apple is considered the laggard and have to keep up with the constant stream of new and better equipped Android phones.
I suspect we we will see the same in tablet-space: After Apple has had the lead for a few years, it will see it's market getting eaten by Android and Apple will have to start playing the game of catch-up once again. Like they've already done with the iPad Mini.
It looks like history is repeating itself. And from these trends, estimating a future sub-10% market-share doesn't seem all that crazy.
Your analysis seems to ignore a fundamental number - the Price/Earnings ratio. Looking at a forward PE, which is a number that help drive stock prices, Apple is around 10 and Amazon over 100. No matter what you thing about Apple vs Android, etc, this fundamental valuation number is way out of whack for Amazon. BTW, I hold Amazon stock and think it's a great company.
Forward P/E only looks at expected profit over the next 12 months, which is likely to be very high for Apple, and very low for Amazon. The big question is, what will the situation be in 5, 10, 20 years?
Forward PE is a guess. Amazon has shown it can sell a lot of stuff at a loss. Guess what, so can I. Apple has shown it can sell stuff with huge profits. That was the past. In the future- who knows...
I'm not sure what you are talking about, but the Price:Earnings ratio is not a guess. It is based on past SEC filings. To suggest as much indicates a significant lack of understanding on your part, and I am really not sure what business you have discussing this topic with anybody.
Edit: I realize that Forward P/E is different from P/E, but various analysts use various numbers for Forward P/E, so it is not a definitive metric in the first place.
The comment above spoke about "this fundamental valuation number" regarding FORWARD P/E. Forward P/E is a guess (== varius analysts use various numbes == Almost always wrong sometimes in a major way). That's why I made the comment. I understand perfectly well what P/E is.
EDIT: Companies also manipulate E in various ways so even though P/E is supposedly not as fictitious as forward P/E you also have to be careful with that number.
Amazon on the other hand. Amazon is killing it. In every single field they enter. Nobody can compete with them in any field they decide to enter.
Nobody can compete with them because they are choosing, through their pricing strategy, to make almost no money (relatively speaking). Buying Amazon stock at these valuations is a bet that in the future they will eventually decide to turn some valves to begin diverting floods of profit into their pockets (i.e., your pocket, as a shareholder), or that the stock price itself will be higher in the future for other reasons (i.e., speculation). The big question is whether the mix of "fields they enter" can support profit margins in the future that will be sufficiently large to justify your investment at current prices (low-margin retail vs. cloud services, for example).
Apple, on the other hand, already has those valves wide open, and is gobbling up historic amounts of cash. The mix of fields Apple has entered is well understood; notably, the market wants Apple to define, enter, and dominate new fields, and Apple's opacity in this regard leads to much gnashing of teeth and rending of garments. At the same time, would the market also prefer that Apple close those valves a bit (make less money to buy marketshare and customers)? Apple is so big and so widely held that there's a large cohort ready to believe any particular strategy is the wrong one.
Agreed on a lot of your points. After owning Apple stock for several years, I'm considering selling it now.
It looks to investors that Apple has run out of ideas, or don't have the design instincts Jobs did and their well has run dry. Sure they've introduced smaller versions of existing products, but where is the next Apple product which is going to make waves and disrupt industries like their other products?? The investors haven't heard anything, and I think Wall Street is getting itchy about the long term prospects of a company whose product ideas seem to have evaporated when Jobs passed away in October of 2011.
Three trends: (1) internationalisation driving revenue growth, (2) digitisation driving margin expansion, and, (3) demography driving changing attitudes towards internet shopping.
(1) 2/5 of Amazon's revenues come from outside the U.S. Amazon has (a) room to grow, and, (b) a foothold to ride rising developing world consumer spending.
(2) Amazon raised its U.S. margins 2 percentage points last quarter YoY. The expectation is that they can export this margin expansion, thought to be driven by digital services.
(3) Proclivity to shop online appears to be, and I say this tentatively, inversely related to age. As people born after 19xy make up a greater fraction of the population online shopping will gain a share of retail activity. Amazon is solidly positioned for this. Further, as the present generation of shoppers gets older and wealthier, its retail, read: online, read: Amazon, spending will increase, too.
Interestingly, most of my friends and colleagues who made the shift from iPhones to Android phones during the vast gulf between iPhone 4 and iPhone 5 are looking to switch back, due to app quality and availability issues. So at least for the narrow (CS BS+-degree) people that I know, I'd argue with his statement about the trend in Android desirability.
I do know quite a few people who are happy with their Android devices, but they all either work at, are significantly supported by, or are trying to get hired by Google.
That's funny, in my experience it's quite the opposite. Most of the people I know and work with who were big and early fans of the iphone have since moved on to Android devices.
It's amazing how much something like the circle of influence around you really drives adoption of one technology over another. Just goes to show you specs probably do little for 90% of people, but to the 10% it does influence, their choices likely permeates to their entire network of friends/co-worker.
It would be fascinating, if hard to do fairly, to measure how "clumpy" technology purchases. As you say, I often read on the internet that "everyone" is switching from X to Y, when I don't know anyone in real life with a Y, our even see people switching away from Y altogether.
Absolutely, that's exactly what I was thinking as well. My guess would be in most cases it would have very little to do with the actual merits of one platform over another and more to do with the trend being set by someone or something in that clump.
With availability it's usually just that Android plays second fiddle. For example, Madden Social is iOS and facebook, but not Android (it's like Words with Friends for the football crowd).
I disagree. There are two main economic reasons to own stock: to earn dividend, or to sell the stock later at a higher price. In Amazon's case, they make almost no profits, so only the second reason applies. Then, what you're really predicting is not how strong Amazon's position is going to be in the future, but how strong other investors are going to think it is: a subtle but important difference.
But what is the endgame? Amazon's business can still grow a lot, but it cannot grow forever. At some point, the growth will be too slow for the crowd that wants to flip stocks fast. The stock is going to end up in the hands of people who want to hold it long-term: the question is whether they will hold it willingly or not. To make it worth it to them, Amazon will have to crank up its profit margin, taking advantage of the near-monopoly position it will have reached by previously undercutting all competition. If it does not, then there will be no reason to hold the stock, and the people stuck with it are going to try to sell lower and lower to recoup part of their investment.
In other words, as far as I can see, there are two possible long-term plans for Amazon from the investor's point of view:
A) "cornering the market" on online sales, and then jacking up margins to squeeze gold out of it;
B) a multi-level marketing game which inevitably ends with the bubble bursting and less-savvy people getting hurt.
I think that rather than the price of Amazon's stock, it would be far more interesting to know who is holding it. If it's savvy investors, we're either in A or in the growth part of B. When retail investors, pension funds and the like start growing, it means we're in B, and nearing the burst phase.
I'm not an investor in Amazon and I don't follow the company but as a general rule what those companies will disclose is a bit of BS mixed with PR in the right amount so they're not obviously breaking any laws. At the end of the day what you can trust is the numbers and the rest you need to guess. This "spending on infrastrcuture", "one time costs", is the standard excuse (e.g. see Intel).
As Amazon grows they will need more infrastructure and they will need to start replacing some of their existing infrastructure. I agree that during accelerated growth the profit will lag these expenses but exactly by how much remains to be seen once their growth stabilizes.
I think the market punishes Apple because the market is all about future performance and Apple has reached a very high amount of growth and stability over time. That isn't to say it won't continue to do well, but when information is priced in, it's hard to justify the multiples. The businesses are very different--stock price is certainly not indicative of anything engineers think or care about.
A company's performance is not strongly correlated to its share price. By conventional measures, Apple has been outperforming its "competitors" for a long time now, it's just that the market does not seem to reflect this in the share price. As to the "why", no one knows. Or maybe everyone knows, and they're all correct.
What I would like to see is for Apple to split the stock. My totally unsubstantiated theory is that this should allow more people to get into the stock and better reflect the real market. A lot of people get into options due to the high price of the underlying, which is a rigged game since large hedge funds and big money can squish all the retail investors (you and me) into maximum option pain right at expiry. e.g. Jan 18 when AAPL was trading exactly at $500.
Never get upset about share prices. If you know they are wrong put your money where your mouth is and hope that you can stay solvent longer than the market stays irrational in this case.
I haven't studied the details of these but if I had to guess the Amazon side probably is riskier but has a larger potential upside while Apple may have peaked but even if they have their is still a decade or more of good profits to expect. I would look for something less high profile with a bigger potential upside than either.
Maybe if people knew what Apple is planning for it's future they might treat it different. I don't get why Apple is hiding everything from everyone.
They can be clear about their future just like Google and Amazon. Everyone knows Google is investing in augmented reality and self driving cars or Amazon is trying to be big in content and customer electric market.
I heard Amazon is bout to get around to being able to distribute from within the state California and thus be able to offer same day shipping with storage locker locations for customers to pick up from. This could be huge and could be the next step to Amazon to being the next big thing.
Fact is, what goes up must come down eventually, apple has been riding on the back of seriously good innovations for a while and they possibly were overbought.
The market gets jittery when it sees a stock to be over bought, no one wants to be last in, like if you bought a house at the top of the boom, so a pull back share value for now is frugal.
Apple's cash may flow freely, but unless they innovate further, they will lose market naturally.
Personally, I think the market expects another innovation akin to iPod, iPhone, iPad.... To me I can't see their next step
But I do hope they have one!
I always here people saying that Amazon has a very high p/e ratio because is spending almost all profits investing in infrastructure. Does anyone have any data on this? What is their profit before they spend it all building new distribution centers?
Strangely this article and the comments above (at the point I read it) don't seem to argue for further Apple growth. Yes people have pointed out that Apple may have peeked, but I didn't read much sign of where they can rise up in the near future....?
This article is generally good, but this bit is wrong. The markets believe Amazon will be in a stronger position in 12-24 months. Relative to competitors is mostly irrelevant - if Amazon is the last man standing, but has shrunk 50%, you still lost 50%. Similarly, if amazon grows 100% but it's competitor grows 200%, you still doubled your money.
(The only place where "relative to competitors" matters is if you have some reason to throw a fixed amount of money into a sector, but you are free to pick the best of the sector.)