My Developer friends are upset about Apple vs Amazon
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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.)
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.
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.
Most investors, however, can put their money into BP, GS or GM if AMZN and all it's competitors are tanking.
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
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.
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.
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.
What if Amazon had a local warehouse and a portuguese language site for example?
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)
Tons of people. Outside of the USA, Amazon is still very small, with not a significant product offering.
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.
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.
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.
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.
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.
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.
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.
The problem isn't decline. Big corporations benefit from inertia before they see real decline.
The problem is that a competitor grows and expands the pie faster and bigger than your slice.
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...
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.
(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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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!