If you had $2T in cash, and you were to buy all of Amazon's outstanding shares, taking it private, to own it forever, earning your money back from the company's profits year after year, after subtracting all amounts reinvested in the business -- in the same manner you would do it with, say, an apartment building, would you ever recover your $2T investment? What kind of annual return do you think you would you earn over the remaining life of the business?
The only bound is how much money can be borrowed at an interest rate lower than the future expected free cash flow of the business.
The share price should reflect future earnings. If you are a shareholder, you believe that amazon will continue to grow and that other people will continue to value its future earnings higher than the price you purchase at.
Amazon’s strategy is not (solely) to make a profit. It’s strategy is to invest in growth, sometimes in such a way that makes a loss or scant profit, to dominate markets in a way that gives them sustained competitive advantage.
If you bought Amazon and asked them to switch to simply profit making, then they could can a lot of the future growth stuff to get your trillions back. Comparing them to an apartment building which can only grow in line with a wider market (ignoring subdivision of apartments etc) is just a weird false comparison in my eyes.
This does not mean the business will chase profits instead of growth.
I believe he’s paraphrasing value investing as described by Warren Buffett. I’d guess other investors have said the same thing although Buffett is quite well-known.
In particular, the market cap of a company should theoretically be equal to the net present value of all future and current cash flows. Therefore, (again, theoretically), if AMZN is priced correctly, the answer should be that you will break even, eventually.
Seen in this light, the company's job is to ensure that its stock is not priced correctly -- that you should actually be able to make a profit by buying AMZN (even the entire company) today.
As we know that theory is wrong we should discard it, which then opens the question back up. Anyway, expectations of future earnings are far from the only way stocks are valued. If you can predict a short squeeze for example you expect a jump in price independent of fundamentals.
What do you think doing that would say about Amazon’s value? Why does that matter in justifying its price today?
In essence guessing if a stock is likely worth it’s current price is asking if it’s a low variance bet (T-Bills), high variance bet, or miss priced.
Maybe in theory, but in practice, at least currently, that’s not how the market is behaving.
The current stock price reflects the aggregated sentiment of past transactions regarding the probability of the actors being able to turn a profit now vs later. The person who is selling is either acting on the sentiment of cutting losses or realizing a gain, while the one buying is acting on the sentiment of the expectation of future gains.
Earnings might be one factor that informs sentiment, but it is not the only one or even the most important, especially for retail investors using Robinhood for example.
Given how bonkers all investment classes are right now, it’s a pretty sane question to me. Also, tagging a seemingly honest question as silly feels a bit harsh to me.