Amazon Joins Apple as World's Second Trillion Dollar U.S. Company

[ActionableMango]

It really isn't. The US debt is about 1X GDP. Japan's debt is about 2X GDP...both great nations.

According to the World Bank, every percentage point above 77% for the GDP-to-Debt ratio costs a developed country 1.7% of economic growth, so we are already crippling our economy with our debt. Now let's look at Japan. Japan has the highest ratio of public debt to GDP of any developed nation in the world, and their economy is famous for its 20 years of stagnation despite a hard working, highly advanced, highly trained, and highly educated work force. So comparing us to them and saying it's all okay is like saying a coke addict is fine because it's not as bad as a meth addict.

Joint Chiefs of Staff Admiral Michael Mullen and Defense Secretary James Mattis have both separately stated that the single largest threat to US security is... Russia? ISIS? Iran, China, North Korea? Nope... they said single largest threat to US security is the national debt.

Director of National Intelligence Dan Coats has said something similar. The largest internal threat to US security is the national debt.

 

[ipponrg]

All true. However, what if Home Depot could deliver the filter for a 5% markup and have it to you in 1 hr?

Answer: The could and they already are doing it.

What about diaper bags and the booger suckers?

So at the cost of time, the 5% markup for a furnace, and the cost of additional shipping for diaper bags and/or booger suckers from multiple e-tailers, this already makes Amazon sound more like a win here.

This reminds me of the days when people would use pricewatch/pricegrabber.com to try and maximize their online shopping experience, and why people shifted to Newegg or Fry's for their one-stop shop for everything.

 

[fairuz]

I can't think of one item where Amazon is best to purchase from.

Lots of consumer electronics. For example I bought the Monoprice DJ style headphones from Amazon for the same price as on Monoprice's site, but the shipping was faster, and I didn't have to bother setting up another account. Also Pop Tarts, not that I eat those. I mean, people aren't buying from Amazon just because they feel like it.
[doublepost=1536177084][/doublepost]

You're confusing revenue with profit. AMZN generates a ton of revenue. They keep their profits low by spending it as part of research, reinvestment, etc.

The money they were making a decade or two ago was used to develop their cloud presence and such.

This, also could also be that they're selling bonds or more shares, leveraging the expectations of future profit. I don't know if Amazon does this, but I mean companies in general.

 

[Baymowe335]

According to the World Bank, every percentage point above 77% for the GDP-to-Debt ratio costs a developed country 1.7% of economic growth, so we are already crippling our economy with our debt. Now let's look at Japan. Japan has the highest ratio of public debt to GDP of any developed nation in the world, and their economy is famous for its 20 years of stagnation despite a hard working, highly advanced, highly trained, and highly educated work force. So comparing us to them and saying it's all okay is like saying a coke addict is fine because it's not as bad as a meth addict.

Joint Chiefs of Staff Admiral Michael Mullen and Defense Secretary James Mattis have both separately stated that the single largest threat to US security is... Russia? ISIS? Iran, China, North Korea? Nope... they said single largest threat to US security is the national debt.

Director of National Intelligence Dan Coats has said something similar. The largest internal threat to US security is the national debt.

It's not like low debt to GDP ratios are indiactors of success. Nepal, Libya, Russia, Afghanistan, Algeria, and Kuwait all have ratios under 30% while Japan, Italy, France, Spain and the UK are all 100% or over. I know where I'd rather be.

Japan's stagnation is a lot more due to their isolated country and relatively small amount of natural resources. Plus, their debt is 2X ours, so any effect is far worse for them.

I'm not saying the debt is nothing...but it's not even close to a country like Japan, which is an amazing place.
[doublepost=1536180356][/doublepost]

What about diaper bags and the booger suckers?

So at the cost of time, the 5% markup for a furnace, and the cost of additional shipping for diaper bags and/or booger suckers from multiple e-tailers, this already makes Amazon sound more like a win here.

This reminds me of the days when people would use pricewatch/pricegrabber.com to try and maximize their online shopping experience, and why people shifted to Newegg or Fry's for their one-stop shop for everything.

Sure, but Walmart carries a lot too. I'm just saying, Amazon isn't going to be alone in this space. People don't do as much "one stop shopping" online because it's so easy to shop online.

People do a lot of price shopping online and buy from retailers they like/trust. I buy stuff all over and realized how expensive Amazon can be. Data shows Amazon has a little under 50% of e-Commerce. That's a lot, but so is the remaining 51% and I'd guess Amazon's share is going to go down and the market will expand. Amazon had a huge head start, but retailers are getting better.

 

[ActionableMango]

It's not like low debt to GDP ratios are indiactors of success.

I never made that point. My point is that the debt is a serious problem.

 

[GGJstudios]

Apple's main profit stream is a product people won't need to keep buying. iPhone updates at this point are only for the coolness of new gadgets, and this can go out of style.

Those who said the same about Mac computers have been proven wrong.

And when the day comes that the iPhone will be succeeded by some next big thing by some competitor, this whole bubble will burst.

The whole argument that Apple's future hinges on the future success of the iPhone is flawed, as Apple's history has shown. It has proven itself capable of reinventing itself in a profitable way, such as the transition from a computer company to a more diverse technology company.

Actually, all those profitable services from Apple evolve around ONE thing: The iPhone.

That's not accurate at all. Many services, such as iCloud, AppleCare and iTunes don't depend on iPhones.

There was a time when Apple was all about computers.

Exactly my point. That computer business, while still good for more than $20 billion in revenue, only represents about 10% of Apple's current business, having been surpassed by iPhones, services and "other". In the same way, iPhone may someday represent only 10% of Apple's revenue and profits, while new products and services may dominate in the future.

Just one small example: Morgan Stanley sees Apple's video business rivaling Netflix by 2025, ups target to $245

 

[Baymowe335]

I never made that point. My point is that the debt is a serious problem.

You haven’t really demonstrated that. The US is incredibly successful with the 1:1 and it’s conjecture to say how much better it’d be with a lower ratio. The debt also wasn’t all just wasted money. Some of it was necessary to save the economy through stimulus or other spending.

I gave examples of bad countries with low debt, so as always, it’s a complicated issue.

 

[ipponrg]

That's not accurate at all. Many services, such as iCloud, AppleCare and iTunes don't depend on iPhones.

They actually do because that's where the bulk of purchases and dependencies come from: iMessage, Apple Music, iCloud to name a few. I dare you to turn off iCloud for your Photos/Messages.

In the same way, iPhone may someday represent only 10% of Apple's revenue and profits, while new products and services may dominate in the future.

Just one small example: Morgan Stanley sees Apple's video business rivaling Netflix by 2025, ups target to $245

There's nothing really dominating about Apple services outside their ecosystem. If you can't use their services without being on the hardware, then I'm not sure how they are going to pivot away from the iPhone.

This is a pretty questionable prediction. Morgan Stanley is basing this prediction on the user base itself and not much on the content. I suppose due to these mediocre budget films such as "Jennifer Aniston and Reese Witherspoon, stars of one of Apple's upcoming series", they may generate more profit overall whereas Netflix is definitely looking for more global presence.

I suppose if a percentage of Apple users decide to subscribe to the service due to its "low priced subscription model" and not because of their content, then it's a win for Apple. However in the streaming industry, excessive profit is far less important as mass audience appeal. I will say at streaming conventions, no one really talks about Apple as a threat to anything. They are so closed inside their walled garden that no one in industry really cares.

 

[Karma*Police]

‘TANSTAAFL’ There is no free shipping the customer pays for it either included in the price of the item or as a separate line on the invoice.

Technically you’re correct but it’s just semantics... point is, it’s cheaper buying from other retailers than from amazon with prime.
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I dont know what the heck you are buying but prime has beaten every price over brick and motor stores for me.

I used to have Walmart price match prime and they actually just stopped price matching Amazon.

I suggest you comparison shop some more. I recently bought 2 oravet dental hygiene chews for small dogs (30 pack), Starbucks ground Columbian coffee, Tide HE powder laundry detergent and Huggies natural care baby wipes (3 pack) from Walmart.com. I just comparison shopped at Amazon after reading your comment and even I was shocked to see how much I saved. I still comparison shop for specialty items, and amazon comes out ahead for some items, but for everyday items, I’ve found that Walmart is the way to go... and I automatically save $120 right off the bat so it’s a no brainer.
[doublepost=1536216643][/doublepost]

Just using Amazon subscribe and save more than covers the cost of prime membership. Save 15 percent on I think it's 3 or more items or 5 or more. Spend 1000 on consumables a year on Amazon and that alone saves you more than what prime cost. Then you factor in everything else.

I used to think like you and subscribed to things like Charmin ultra soft toilet paper... until I started comparison shopping and found out that Walmart had that and a lot of other everyday items for less. Sometimes a lot less. They’re not always cheaper, but overall, they come out ahead. Which means by the time I spent $1,000 just to break even on prime, by shopping at Walmart and other retailers that offer free shipping, I already saved myself $120 and then some. The math doesn’t work out in amazon’s favor. If it did, I’d still have prime.

 

[mingravity]

Just some facts for you.

Apple has far more products than Amazon. Amazon is just a retailer of products. Or are you talking about their 0 margin Echo or their 0 margin tablets? Services? They have Prime and AWS. Great businesses. However, just FYI, Apple's services biz alone is a $30B business Growing at 30% which is larger than AWS and almost as large as both AWS and Prime combined.

Other than Prime and AWS, Amazon is an online retailer making very low margins. Prime and AWS are very nice businesses, but Apple Services 1.2B devices and makes money on every one of them. Then they make 38% GM on all 300M+ Apple devices they sell annually.

As we've seen, Apple is far, far, far more profitable than Amazon. Amazon's valuation is entirely based on the future, a future we haven't seen. Apple has done it and their multiple is still under 20 and deserves to be much higher with their services growth I mentioned.

i completely agree with you and never denied the fact that Apple is more profitable. but profitability and stock being volatile are 2 different things.

 

[Blaze4G]

Technically you’re correct but it’s just semantics... point is, it’s cheaper buying from other retailers than from amazon with prime.
[doublepost=1536214867][/doublepost]

I suggest you comparison shop some more. I recently bought 2 oravet dental hygiene chews for small dogs (30 pack), Starbucks ground Columbian coffee, Tide HE powder laundry detergent and Huggies natural care baby wipes (3 pack) from Walmart.com. I just comparison shopped at Amazon after reading your comment and even I was shocked to see how much I saved. I still comparison shop for specialty items, and amazon comes out ahead for some items, but for everyday items, I’ve found that Walmart is the way to go... and I automatically save $120 right off the bat so it’s a no brainer.
[doublepost=1536216643][/doublepost]

I used to think like you and subscribed to things like Charmin ultra soft toilet paper... until I started comparison shopping and found out that Walmart had that and a lot of other everyday items for less. Sometimes a lot less. They’re not always cheaper, but overall, they come out ahead. Which means by the time I spent $1,000 just to break even on prime, by shopping at Walmart and other retailers that offer free shipping, I already saved myself $120 and then some. The math doesn’t work out in amazon’s favor. If it did, I’d still have prime.

Trust me I know. But there are lots of everyday items you can't get cheaper from big box stores than Amazon. I'm actually a seller on Amazon so I do lots of price comparisons of high selling products from other stores to resell on Amazon. A lot of times I can not find it anywhere cheaper on the web, even from wholesalers / distributors of that product.

If Amazon is the seller they usually have the product competitively priced with majority of retailers in the USA. If it's from a 3rd party seller then you might be able to find it cheaper else where.

I used to do retail arbitrage which involved going to a big box store and scanning products into an app which automates my profit margin. 5 years ago I could go to Walmart and find lots of products to resell on Amazon for a higher price. Now you'll be lucky to find 3 after scanning 100.

 

[TallManNY]

It's all theoretical anyway, however, the buybacks also removed that amount of cash out of the market cap. Buybacks and dividends shouldn't affect the P/E precisely because the metric is on a per share basis.

But yes, the market was punishing AAPL for having too much cash lying around, so they had to do something with it. And since they couldn't find anything worthwhile to buy with it, they started paying back to the shareholders.

Shouldn't a buy back effect the earning part of P/E? The price of the stock is per share. The earning part is take all the earning and divide by the number of outstanding shares. The buyback reduces the number of outstanding shares. So it increases Earnings per share part of the equation. And this results in increasing earning per share which brings the P/E down.

Now you could say the cash on the balance sheet would have helped increase the Price of the stock. But as you say, Wall Street doesn't really like to see that much cash lying around. And I get why. When I buy Apple stock, I don't want the stock price to be buying 70% innovation and company performance and 30% cash lying around. With that stock purchase I just want to invest in Apple the company, not Apple the conservative money manager with $200 billion in conservative cash and security investments.

But the theory is just theory. The stock price is mainly influenced by just how the market feels.
[doublepost=1536235305][/doublepost]

The fourth largest annual budget item is paying just the interest accrued on the national debt. To be clear, that $310B budget item isn't paying off any of the debt, it's just paying to kick the can down the road one more year, at which time we will do the exact same thing again except it will be even bigger.

To put that $310 billion interest payment in perspective, NASA's 2018 budget is $19 billion and the US Army's 2017 budget was $148 billion. It seems like a "big deal" to me.

Yeah, it is crazy big numbers. But we did run budget surpluses under Clinton. And the U.S. companies seem to be continuing to kick ass. So our debt while large, it isn't quite crazy large compared to the U.S. economy. But damn it keeps getting bigger. And with the GOP tax changes of 2018 lowering taxes across the U.S., it will produce even larger deficits going forward.

By the way, I assume you know when you are quoting the U.S. Army budget, that this does not include the U.S. Navy, the U.S. Air Force, the Marines (though maybe their budget is in the Army's budget), and the U.S. National Guard. If we ever want to get serious about lowering the debt, we can start by lowering the budget on our military. It is useful to be able to win a war against another country in a matter of a few weeks (see Iraq). But, the long term productivity of having that ability is somewhat questionable (see Iraq).

 

[ftaok]

Shouldn't a buy back effect the earning part of P/E? The price of the stock is per share. The earning part is take all the earning and divide by the number of outstanding shares. The buyback reduces the number of outstanding shares. So it increases Earnings per share part of the equation. And this results in increasing earning per share which brings the P/E down.

Now you could say the cash on the balance sheet would have helped increase the Price of the stock. But as you say, Wall Street doesn't really like to see that much cash lying around. And I get why. When I buy Apple stock, I don't want the stock price to be buying 70% innovation and company performance and 30% cash lying around. With that stock purchase I just want to invest in Apple the company, not Apple the conservative money manager with $200 billion in conservative cash and security investments.

But the theory is just theory. The stock price is mainly influenced by just how the market feels.

Now that I think about it some more, I think you're right. For some reason, I was thinking that the stock price would theorectically drop after a buyback, but I just did the math and it wouldn't. So the P/E would rise in theory.

Thanks for straightening me out.

 

[TallManNY]

Now that I think about it some more, I think you're right. For some reason, I was thinking that the stock price would theorectically drop after a buyback, but I just did the math and it wouldn't. So the P/E would rise in theory.

Thanks for straightening me out.

Thanks. We are actually both a little right. Since the stock price should drop a bit because the stock price should include the value of the cash on balance sheet which is an asset of the company. But as you said in your second point, Wall Street doesn't really ascribe much value to cash on the balance sheet of a company. I think this is because Wall Street doesn't know what that cash will be used for. It could be wasted (and it often is by other companies) in some large acquisition which doesn't end up working out. (Buying Yahoo or Netflix was a suggested use of Apple's cash for a while.) Or worse, from a Wall Street perspective, simply paid out in bonuses to employees. So I think Wall Street gives far less credit to the cash.

 

[GGJstudios]

They actually do because that's where the bulk of purchases and dependencies come from: iMessage, Apple Music, iCloud to name a few. I dare you to turn off iCloud for your Photos/Messages.

You assume that everyone uses the same kind of devices that you do. I used iMessage, iTunes and AppleCare for years before I ever owned an iPhone.

There's nothing really dominating about Apple services outside their ecosystem. If you can't use their services without being on the hardware, then I'm not sure how they are going to pivot away from the iPhone.

Again, you're assuming that Apple will continue to offer services only within their ecosystem. With its innovation history and financial strength, Apple has the capability of moving into industries (such as film and TV content) that reach far beyond it's current devices.

My point is that Apple has already demonstrated its ability to evolve beyond the computer industry, by expanding, innovating and transforming industries such as mobile phones, wearables, music and more. What makes you think they can't continue to do the same?

 

[ipponrg]

You assume that everyone uses the same kind of devices that you do. I used iMessage, iTunes and AppleCare for years before I ever owned an iPhone.

Their sales show that most of their users are on the iPhone. I wouldn't consider AppleCare really a service in the same veins as iMessage or iTunes. AppleCare is just warranty. iMessage was barely a blip on the radar until the iPhone came out. It'd be naive to think the iPhone did not lift immensely services you listed, sans AppleCare.

Again, you're assuming that Apple will continue to offer services only within their ecosystem. With its innovation history and financial strength, Apple has the capability of moving into industries (such as film and TV content) that reach far beyond it's current devices.

Ask yourself and be honest... have they really done this? Have they really gone outside of their ecosystem beyond their current devices?

My point is that Apple has already demonstrated its ability to evolve beyond the computer industry, by expanding, innovating and transforming industries such as mobile phones, wearables, music and more. What makes you think they can't continue to do the same?

Phones, wearables, and music are all fall under the same category ... mobile. That's what their current strengths are. They've demonstrated in this regime that they are a little out of touch with the computing industry. It almost feels that they gave up on past histories and are betting bigger on persisting their mobile space.

I wouldn't say they can't continue to do the same. I would argue that they have yet shown any indicators of being successful. Apple has tried time and time again to develop/improve the living room experience. They have fallen short again and again. Apple's business isn't content (in retro to film/tv), even though from a user's perspective that might be the next best logical expansion. The film industry is where money doesn't always buy success.

 

[ActionableMango]

You haven’t really demonstrated that.

I mentioned the three key people indicating that our debt is the biggest threat to the security of the United States, and the World Bank study indicating how much debt hurts our growth. I could provide much more. And don't forget that debt is going up. And your response to Japan's 20 years of economic stagnation is "it's a neat-o place". So frankly, I'm wasting my time.

 

[fairuz]

Those who said the same about Mac computers have been proven wrong.

I've always said the opposite about the Mac. It's the superior computer for work, and more and more people work on computers.
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According to the World Bank, every percentage point above 77% for the GDP-to-Debt ratio costs a developed country 1.7% of economic growth, so we are already crippling our economy with our debt. Now let's look at Japan. Japan has the highest ratio of public debt to GDP of any developed nation in the world, and their economy is famous for its 20 years of stagnation despite a hard working, highly advanced, highly trained, and highly educated work force. So comparing us to them and saying it's all okay is like saying a coke addict is fine because it's not as bad as a meth addict.

Joint Chiefs of Staff Admiral Michael Mullen and Defense Secretary James Mattis have both separately stated that the single largest threat to US security is... Russia? ISIS? Iran, China, North Korea? Nope... they said single largest threat to US security is the national debt.

Director of National Intelligence Dan Coats has said something similar. The largest internal threat to US security is the national debt.

Not just crippling the economy but crippling the government. I've seen atrocities in public school finances, Los Angeles Unified School District having to pay double for everything because of their huge debt and probably bad credit. And they were going to buy $1B of iPads with that, lol.

The US debt is scary, especially with govt stimulus still in effect digging it deeper despite the economy not only being recovered but overly extended (possibly wrong terminology here), with inflation ramping up. I mean, US corps are accomplishing great things, but any sudden changes can ruin it.

I think Japan has a different problem, which someone else said. Limited land, plus their society somehow got messed up to the point where there aren't enough children.

 

[Karma*Police]

Trust me I know. But there are lots of everyday items you can't get cheaper from big box stores than Amazon. I'm actually a seller on Amazon so I do lots of price comparisons of high selling products from other stores to resell on Amazon. A lot of times I can not find it anywhere cheaper on the web, even from wholesalers / distributors of that product.

If Amazon is the seller they usually have the product competitively priced with majority of retailers in the USA. If it's from a 3rd party seller then you might be able to find it cheaper else where.

I used to do retail arbitrage which involved going to a big box store and scanning products into an app which automates my profit margin. 5 years ago I could go to Walmart and find lots of products to resell on Amazon for a higher price. Now you'll be lucky to find 3 after scanning 100.

Walmart is 10x bigger than amazon so they have more buying power and carry a larger selection of the most common household items firsthand and it shows. It’s quite possible your everyday items differ from mine, but in my most recent shopping experience for everyday items (which I listed in a recent post here), 3 out of 4 items were cheaper at Walmart and 1 of them by 50%! The odd thing is, that item was listed by 3rd parties on both sites so you’d think that’s where there would be parity.

You’re right in that Amazon has more 3rd party sellers but that’s also created a huge UX problem cos some participate in prime and others don’t; some offer subs, others don’t. Also, it’s made amazon’s search results increasingly eBay-like and wading through all those options has really deteriorated the overall shopping experience.

 

[fairuz]

You haven’t really demonstrated that. The US is incredibly successful with the 1:1 and it’s conjecture to say how much better it’d be with a lower ratio. The debt also wasn’t all just wasted money. Some of it was necessary to save the economy through stimulus or other spending.

I gave examples of bad countries with low debt, so as always, it’s a complicated issue.

Cause vs effect. Poor countries can't have high debt because nobody will loan them that much in the first place.

If you compare it to typical corporate plans, high debt is the risky and high-growth play, increasing leverage. This is Trump's plan. It works fine unless the govt gets cornered in a place where they have no choice but to shut things down to pay... which the US has slightly done twice, and it scared the market.

 

[Baymowe335]

Cause vs effect. Poor countries can't have high debt because nobody will loan them that much in the first place.

If you compare it to typical corporate plans, high debt is the risky and high-growth play, increasing leverage. This is Trump's plan. It works fine unless the govt gets cornered in a place where they have no choice but to shut things down to pay... which the US has slightly done twice, and it scared the market.

The US can print its own currency, which is why we will always pay our bills.
[doublepost=1536287072][/doublepost]

Now that I think about it some more, I think you're right. For some reason, I was thinking that the stock price would theorectically drop after a buyback, but I just did the math and it wouldn't. So the P/E would rise in theory.

Thanks for straightening me out.

Yes, buybacks will by definition increase EPS because you’re reducing the shares outstanding. The company is essentially retiring shares permanently while earnings are unchanged (or rising) in Apple’s case.

If Apple makes $50B and has 5B shares and buys back 1B shares, their EPS will be $50B/4B instead of $50B/5B. So $12.5/share instead of $10/share. If you assign a p/e of 20, you get a $250 share price versus $200, or 25% more without increasing profit at all. This is the beauty of buybacks.

Any increase in share price is still up to the people buying/selling the stock. The p/e multiple assigned is totally separate from the buyback. The market determines the multiple for a stock, not the earnings or the shares outstanding. The p/e multiple is simply a reflection of how much investors are willing to pay for the company’s earnings. In Apple‘s case, it’s around 20...in Amazon’s case, it’s about 200 times. Meaning, Apple would trade at a $10T valuation if investors paid for Apple’s earnings what they do for Amazon’s.

 

[fairuz]

The US can print its own currency, which is why we will always pay our bills.

We don't print currency at anywhere close to the deficit rate. If we did, it'd totally screw up our economy.

 

[Baymowe335]

We don't print currency at anywhere close to the deficit rate. If we did, it'd totally screw up our economy.

And we shouldn’t. We can if we need to...that’s the key. Ask Greece.

US Economy > All

 

[fairuz]

And we shouldn’t. We can if we need to...that’s the key. Ask Greece.

US Economy > All

A sudden plunge in the value of the USD would totally ruin our credit, among other things. Yes it's maybe the best option if we're already screwed but would still be disastrous.

Greece is different. They have the EU to mooch off of, like the other PIIGS countries. Part of the reason the EU is having so much difficulty. Otherwise Greece would be ruined like Venezuela.

 

[Baymowe335]

A sudden plunge in the value of the USD would totally ruin our credit, among other things. Yes it's maybe the best option if we're already screwed but would still be disastrous.

Greece is different. They have the EU to mooch off of, like the other PIIGS countries. Part of the reason the EU is having so much difficulty. Otherwise Greece would be ruined like Venezuela.

Greece would rather be able to print their own currency and any country would want the economy of the US.