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Comment by paulpauper | Hacker News Reader

So much for all those failed predictions in 2014 of amazon never being profitable, being a bubble, etc. Amazon's cash flows are very strong, they have huge growth, and market dominance..whats what matters.

Amazon is the online version of Walmart but much bigger and much more potential...they are taking over retail, both online and offline...just amazing

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Their profit margin is 7% if you exclude AWS. That is similar to walmart. Amazon is worth almost 50% more than walmart right now Except Walmart generates 2x FCF when compared to Amazon. Even if you double profits they are trading at 50xP/E. Walmart Revenue 4-5X of Amazon.

The market is obviously betting Amazon is going to get a lot larger yet, at the likely cost of Walmart losing sales (Walmart stopped growing meaningfully years ago). In those types of circumstances, the company that is getting consumed is going to get a sizable discount applied to their earnings, as Walmart is today. And the company with growth almost universally gets a seemingly irrational multiplication given to their business. Same story repeats over and over again (IBM vs MSFT -> MSFT vs GOOGL > GOOGL vs FB).

That value gap between Amazon and Walmart - ~$130 billion - can be argued to be solely made up of the market's valuation now slapped on AWS, based on the expectations of the coming three to five years. I've seen arguments getting routinely made by leading analysts and financial press that AWS is already worth nearly as much as IBM today. Is that true? Who knows, but it's clearly extremely valuable, whether that's $60 billion in market cap equivalent or $130 billion.

Wmt is 500 billion dollar company. How do you expect them to grow? They start to asymptote with overall economy. Even if they grow 1% that's 5 billion dollars.

Sure, but that's why WMT shares are priced at a discount. The same thing happened to Apple, if you're not growing you will watch your P/E dive.

One way I think about Amazon's economic model vs WalMart's is: Walmart stores in rural areas are sometimes thought of as natural monopolies, that is the area only needs one superstore, so when Walmart is already there, it doesn't make sense for someone else to make the large investment necessary. So in those small towns, Walmart will always be the only name in town- a natural monopoly.

It remains to be seen, but I think it's possible that online retail might be similiar. Amazon is building huge, advanced distribution centers in many areas. Will this be enough to allow Amazon to have a natural monopoly, not just for one rural area at a time like Walmart, but for the entire country / world? I think it's certainly possible.

That's been going on forever. Google "Ravi Suria" or see this from 2002...

http://www.newyorker.com/magazine/2002/05/20/doom-incorporat...

Their PE ratio is 300. That's not profit that's wishful thinking. I will be amazed if they ever get to 100. Today prices are based entirely on dreams. Sure someday they might make lots of money. Apple makes more profit every few days. With AWS they would have nothing.

>With[out] AWS

This is such a moot point.

That Amazon a "retail" company was able to roll out Kindle and popularise E readers (while handling distribution)...

That Amazon were able to roll out AWS, a highly profitable cloud platform...

That Amazon are in the process of launching automated drone delivery...

These facts are not coincidence, they are inextricable from Amazon being what it is - a tech company that happened to start with Retail as its cash cow. It's an innovative company that is not content sitting around getting fat the second it reaches some sort of comfort zone, and until running a company like this becomes the norm, they can afford to command higher PE ratios while people anticipate their next big blockbuster product.

To compare Amazon to Walmart, a company whose be all and end all is Retail, is missing the bigger picture.

(nb that's not to say that their current trading ratio isn't overinflated)

Except Walmart has Walmart labs so they are at least a tiny bit tech :)

People were also skeptical about Facebook turning a profit and have a PE less than 100. Now Facebook is literally printing 2B per quarter with a more sane PE (~60) as growth continues to accelerate.

Only time will tell, but if Amazon continues bring users into their Prime ecosystem and AWS maintains its position, there's plenty of room to increase profits.

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