In 2012, Amazon made $631 million profit on over $48 billion revenue - meaning they converted a little over 1% into profit. Meanwhile, almost every other comparable company had close to 20x that. Google made about $11 billion on $48 billion, and Apple made $41 billion on $156 billion. From a purely financial perspective, it really is insane.
Plus I'm under the impression that Amazon is investing more into growth at the moment than Walmart is.
Is there any country where Amazon has tried and failed to compete?
(Walmart didn't announce 4Q numbers yet.)
The thing that sticks out most from their earnings release is that the trend is clearly downward. The profit margins and net cash flow are sinking, while operating costs, number of employees, etc are rising. Added to that, their market cap/stock valuation is truly insane, which IMO is a ticking time bomb.
What this all means is that Amazon is going to get in a shitload of trouble somewhere down the road. Remember that they only made about $5 billion in profit over their complete lifetime, of which only about $1.5 billion is left after deducting losses, so in terms of cash Amazon is more or less on life support of their investors. All it takes is some relatively minor event (more focused competition, lower consumer spending, some kind of bad media attention) and their stock will tank, and the whole constellation could go down like a house of cards.
No matter how much you like Amazon and its services, it's hardly an example of a solid business if you ask me.
So if all it will take is a relatively minor event, why hasn't it already happened yet for a company that has been around over 15 years?
I'm quite surprised they have been able to keep up this game for so long myself, but it's not totally crazy. Online shopping is has been growing like crazy for since Amazon started, the market today is probably at least a 100 times larger than ~10 years ago. Some day though, growth will start to level off, and looking at Amazon's earnings releases over the last 2 years or so, it seems like we're almost there. It's going to be very interesting to see what happens to Amazon when they cannot keep growing any bigger.
Wal-Mart's PE ratio is 14.38. Safeway's is 9.25, Apple's is 10.35.
Now their investors may care, and there may be board fights and so on, but if Bezos can control that then he has some leeway to build the company he wants. It's pretty impressive, really.
And it's very intriguing what's going on in Cambridge (MA). A lot of hiring and work and what-not yet nobody seems to know what they are doing.
That said, there are exceptions to every rule. I'm not aware of any other companies that currently exhibit such a high P/E.
But in a long perspective, there needs to be a small ratio between what you paid for the stock and what the company earns if it is going to be a good investment. FYI I am heavily invested in Tesla Motors, which currently has an undefined/negative P/E ratio.
EV/EBITDA is ~53 vs. Walmart's ~8 vs. Google's ~13. EBITDA is basically earnings but more complex ("earnings before interest, tax, depreciation, and amortization").
From what I've read there's concern Amazon is overvalued, but not what the Slate article portrays as them being some charity case, being invested in by people with ulterior motives to keep consumer prices low (I have no idea if that was even a sarcastic point or not. It's a terrible article).
They are still expanding to new countries. Last year, for instance, they opened amazon.es and amazon.com.br which are significant markets.
I don't see what's the point in comparing revenue to profit ratios in wildly different sectors.
That's fair, I don't buy the comparisons of Amazon with Google, Microsoft, etc either. It's also true that P/E ration can be misleading, for example even a healthy company might book a loss, or small profit from time to time for all sorts of reasons.
The problem with Amazon is that their current share price is around $250. For that to make sense, you need to believe that their earnings will rise so that this becomes a good deal. To achieve a P/E ratio of say 20 (still too high for a retailer), their earnings would need to go up about 150x. How are Amazon going to become hundreds of times more profitable than they are now?
From a normative perspective that honestly seems quite evil. I guess then I can be happy it hasn’t happened yet.
Probably not. Historically, this has rarely worked. Once they jack up their prices, it isn't that hard for competitors to sprout up.
Amazon will have to follow the walmart model - obliterate all other retailers and keep prices low forever.
If a retailer wants to double its revenue, there are two basic options. Double your margins. Or double your volume by cutting the time you hold inventory in half. Amazon has aggressively gone for the second approach, and is glad to cut its margin in half in return for tripling sales.
Your "comparable companies" are not in the consumer retail business. And if they tried to maintain their margins while competing head on with brick and mortar commodity retail stores, they'd go out of business.
So there's an unlimited amount of buyers willing to buy and every time you cut the time you hold the inventory in half people shall buy twice as much?
Furthermore it gets better. Frequently if you have good credit, you can take a shipment, sell it, and then pay later. This gives you float that you can use for things like paying the overhead of keeping unpopular items in stock. (Remember, Amazon makes substantial money both from having things that are hard to find elsewhere, and by selling commodity items in bulk.)
* Kindle books (especially self-published ones) should have better margins than real books. Kindle grew 70% YoY while real books only grew 5%.
* A growing chunk of their revenue is from AWS, and software-as-a-service certainly has higher margins than mail order.
Amazon is investing in growth right now. That's why their profits are so low. Normally, one might think that a company of Amazon's age and size ought to be through the growth stage by now, and in fact it is TRUE: Amazon has finished dominating the book industry, and really has no more room to grow.
Except that they found new markets and moved beyond books. Now they are a universal retailer of anything that can be sold on the internet. But that market (although not fully saturated yet) still isn't big enough for them, so they've also moved into making tablets for the masses. And into running server farms for the entire world. As long as they keep knocking over new markets at this rate, they don't need to show much profit.
[DISCLOSURE: I do not own Amazon stock, primarily because I think it is overpriced. So I suppose I don't completely disagree with the parent post.]
http://finance.yahoo.com/q/is?s=AMZN&annual
2012 appears that it's going to be a net loss, because of their horrible Q3 numbers.
http://finance.yahoo.com/q/is?s=AMZN
If I were an investor in Amazon, I would definitely be worried at this point. Even though revenue is up sharply, Amazon doesn't appear to be making a consistent profit at all-their net income was down 50% from 2010 in 2011, even though they had a ~33% increase in revenue.
Considering how much Amazon is spending to consistently update their infrastructure, I wouldn't be surprised.