
My Developer friends are upset about Apple vs Amazon - jusben1369
http://jmlite.tumblr.com/post/42204930079/my-developer-friends-are-upset-about-apple-vs-amazon
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yummyfajitas
_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.)

~~~
sliverstorm
_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.

~~~
yummyfajitas
As I said in my parenthetical, if you are limited to investing in Amazon or
it's competitors, that's true.

Most investors, however, can put their money into BP, GS or GM if AMZN and all
it's competitors are tanking.

~~~
sliverstorm
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.

~~~
18pfsmt
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:

TCK, SWC, KMP, SDRL, HERO, CJES, JBHT, XPO

On the risky consumer side:

GDOT, LEAP

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Tloewald
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.

~~~
peripitea
>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.

~~~
Tloewald
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).

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josteink
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.

~~~
pswenson
@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
> @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.

[1] [http://techcrunch.com/2012/11/02/idc-android-market-share-
re...](http://techcrunch.com/2012/11/02/idc-android-market-share-
reached-75-worldwide-in-q3-2012/)

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JumpCrisscross
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.

Disclaimer: I do not have a position in AMZN.

~~~
rjbond3rd
Hmm, why not, after you've made a compelling case?

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larsberg
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.

~~~
cageface
What kinds of apps in particular do they find lacking on the Android side? Is
a matter of app quality or app availability?

~~~
msoad
Last night my friend couldn't find Vine on her Android and was pissed off. She
was talking about going back to iPhone

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Camillo
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.

~~~
rednukleus
What you are missing is that the reason why Amazon aren't "making a profit" is
because they are spending all their revenues on infrastructure.

While they are still rapidly growing on an international scale, with very low
margins they can hide all their profits in expenses.

The long game is not to jack up prices, profits will come as soon as they slow
down growth. Which will not be for a while.

~~~
YZF
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.

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derstang
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.

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brisance
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.

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josephlord
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.

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msoad
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.

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lilbear
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.

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shaydoc
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!

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samwillis
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?

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lucidquiet
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....?

