Just curious why does wall st and others use "Earnings per share". The number of shares is arbitrary and can be adjusted up or down by a split/reverse split or dilution.
It seems to me that EPS is just earnings divided by an arbitrary number. Why not look at operating profit as a percentage instead?
dividends are what people historically bought stocks for, not speculation. If you want your stocks to pay dividends, earnings per share is a much more useful metric.
Then you want Earnings per Price. i.e. How much Earnings for STOCK*STOCK_PRICE.
(Earning / Price) is not a typical metric, (Price / Earnings) (i.e. PE Ratio) is the more typical metric. These metrics are meant for casual/institutional investors not lay people[1].
Meanwhile, if you still want (Earning / Price), you can do (1 / PE Ratio).
[1] If you aren't able to find the number of STOCK units you own or will purchase, then you are not a casual/institutional investor.
> The number of shares is arbitrary and can be adjusted up or down by a split/reverse split or dilution.
The number of shares you own is not arbitrary - it's actually a very important number to you. So you multiply how many shares you own, with EPS, and you know your personal profit.
In particular your profit per how much that share cost.
Obviously investing in stocks has other ways that you can make money, but EPS is pretty core to the whole thing.
You need to normalize against something when comparing the share price of one company vs. another company. EPS helps you determine the worth of any single share.
Yes, if you're curious how well a particular company is doing over time, then it's arbitrary and not very helpful. But if you are comparing the relative value of a single share of company A vs company B, then it's helpful.
(Which is then also related to the sibling comment about dividends).
It allows to sort of doing mentally the calculation of if the share price is 10x, 20x the EPS, as to quickly see it the share price is interesting for your perception of that company. That is it helped with a quickly triage for steals.
Probably the EPS metric made more sense before Excel.
It's most interesting to investors because the entire value of the company is also divided by the arbitrary number of shares to get the share price, so it makes it easier to compare one stock to another by looking at the ratio of EPS and share price.
Even though the # of houses in a city is arbitrary, when you buy a home, you want to know how much Rent Equivalent are you getting every month. Now, you can clearly price the house.
Because a multiple for earnings per share gives you a rough idea of a fair share price. If earnings per share is $1, and the Share price is $5, that's fantastic. If the share price is $50, not good. You can track that multiple over time to know when to buy or sell a stock.
Of course that's only a superficial analysis. You have to take into account the book value (asset value). If the company is high growth. What industry it's in. Whether a change in earning per share is due to a one-time event. Etc.
> If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small. Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe. This includes investments in personal protective equipment, enhanced cleaning of our facilities, less efficient process paths that better allow for effective social distancing, higher wages for hourly teams, and hundreds of millions to develop our own COVID-19 testing capabilities
This seems huge. Spending all $4 billion of their expected Q2 profit on covid-19-related things, including developing their own tests.
Committing to spending all of your future profit (which seems like a huge statement on its own) aside, anyone know how this compares to what other companies (or even governments) are spending on safety/testing? Trying to get a sense for the scale here.
Although, most of that $4B will probably be spent on finding and onboarding hundreds of thousands (175k so far) of new staff to deal with the demands on the retail business caused by COVID-19.
Considering I have been getting non-Amazon purchases much faster than Amazon purchases I suspect that's really code for paying for the delivery costs that exceeded the actuarial models that were baked into Amazon Prime and thus turned 1 day free delivery into 8 day free delivery.
I don’t know if any company putting 1/10 of that kind of money into an effort like that. (I’m excluding drug companies for obvious reasons.)
As for governments, given the difference in measurements, it’s hard to compare. For instance, do you count lost tax revenue? I’d bet several states surpass that, and probably a few big cities come close (NYC & LA come to mind).
This may be cynical, but I think this was a PR focused earning to offer better optics.
I think they absolutely had to say something to placate the rising tide of voices against their monopoly and for their contribution to so many retailers' downfall- even without COVID. This will earn them some brownie points as in "Oh- AMZN's sales went up but at least they were not gouging- they invested all their profit in improving their service and employee benefits"
This type of cynicism is exhausting. It seems that if they're damned if they do and damned if they don't, Amazon might as well pocket the cash and not worry about doing good things because people will trash them regardless.
It's not only exhausting, it's counter-productive and creates moral hazard. If companies think they will be put through the wringer regardless of whether they do the good thing or the evil thing, they will always do the evil thing. Rewarding good behavior incentivizes more of the same, cynically dismissing it ensures you won't get any more.
I’m not the original commenter so I’m only speaking for myself here but if a company has shown itself to be ruthless and harmful (to its employees, the environment, small businesses) I don’t think you need to give them the benefit of the doubt when they do a solitary good thing.
I’ll give Amazon props when they start supporting warehouse unionization, lobby the govt for a carbon tax, sell off Whole Foods, AWS, amazon basics + all in-house home goods into separate entities. Of course that will never happen because anything that actually stops the harm that Amazon does would be detrimental to the business.
If it's all or nothing like you're expecting, I expect it will never happen. If the public majority holds your opinion (I suspect it might) then Amazon will continue to operate lawfully but unethically since there's nothing to gain unless they effectively cease existing. The current modus operandi seems to be working for them so I don't see that changing just to have the public spit in their face for not doing enough overnight.
So you don't support any big company?
Which company is supporting unionisation? Hell, most big tech companies don't even employ non professional workers directly, instead as a contractor.
So which is the noble big company you support? Which has sold of all diversified businesses? A company doing what you are suggesting will not even survive for long.
Amazon, Google, Apple, Exxon, etc. are all built on exploitation.
My point wasn’t that Amazon is more evil than other corporations, I think that’s only marginally true. Probably only because of how much more efficient they are than a lot of companies.
You’re probably right! I do think our culture of praising the wealthy for handing out pennies is a huge smokescreen that avoids actual change, but you’re right that posting comments on HN is not going to do much to change public opinion.
If the companies society relies on are built on exploitation, maybe it's time to revisit the entire notion of exploitation and what it means. I feel exploited by my government because I put in much more than I receive but I have come to terms with it because it's necessary. Worse yet, I have much less choice in the matter than someone using Apple iPhones or Google Search or Amazon Prime.
You don't need to be an insider to realise that the management has been tuned to squeeze every ounce of sweat in the name of leadership principles. If you were an insider, you'd probably be sick to your stomach, if you knew where to look. Now, Amazon (being so huge that it is) cannot explicitly promote such behaviour from their managers but there's an epidemic of assholes for a reason, like one of my friends likes to put it.
So, yes, when things like this leak out [0][1], you'd bet your bottom dollar that Amazon does really care about optics [2].
That said, I understand their predicament and I admire tough decisions they need to take to keep the business going [3] in a time where logistics is an absolute nightmare even at a smaller scale, but I don't, for one second, underestimate their will to bend rules and regulations to hit whatever bottom line metric they are measuring at any given point in time [4].
Isn't the elephant in the Amazon boardroom that AWS essentially pays for any mischief they can do with their retail arm?
i.e. Sell an equivalent item at a loss for an extended period of time to force a competitor / retailer out of business? Opening up a physical bookstore after essentially crushing that market felt like a "finger" to ex-businesses to me.
I don't see the problem. It's Amazon's money; they are entitled to spend it however they want.
I think a lot of people are mad at Amazon for various things; undercutting mom-and-pop businesses in niche markets, paying people to deliver packages almost for free, busting warehouse unions, counterfeit items, etc. The solution is to not fund Amazon. Move your servers elsewhere. Shop at Target. Ask your representatives to make stronger labor laws.
But all in all, I don't think it's intrinsically wrong to start selling an internal tool and then end up making a lot of money from it. If Amazon weren't dominating online retail, someone else would be. Nobody wants to go to a store. It's boring and there isn't a very good selection. That is not the fault of cloud computing.
> I don't see the problem. It's Amazon's money; they are entitled to spend it however they want.
If they actually were selling products at a loss to put competitors out of business, that would be considered predatory pricing. Imagine Apple using their iPhone profits to sell MacBooks for $200 - it would distort the market and eliminate competition. It might be good for consumers in the short run, but much worse when they were the only game left in town.
Manufacturing laptop is not something that has a big barrier of entry, So apple would just eat its own loss forever or watch competition spring back the moment they can't take that loss anymore.
>Ask your representatives to make stronger labor laws.
Lawmakers don't do things when one person asks, they need significant public pressure. Publicly showing displeasure with how a company operates is usually the first step for that.
This is like saying that you should not make moral judgements on a person as long as they are not breaking any law. A person could be doing completely legal things and still be a complete asshole. A lot of people being mad is what eventually leads to laws.
Looking at Amazon's stock, one of the more surreal financial things going on during this pandemic depression, is seeing the Bezos fortune cross $200 billion today while we have 30 million newly unemployed persons in the past six weeks. Had Jeff and MacKenzie not gotten divorced in the recent past, Jeff would presently be listed right at about $200 billion today. As it is, Jeff is up to $150 billion and MacKenzie is at $50 billion. Jeff is nearly worth as much as Warren Buffett & Mark Zuckerberg combined (#4 and #5). If the tech juggernaut outperformance (they're levitating apart from much of the economy) continues for a bit longer, it'll take Bill Gates + Warren Buffett ($180b) to equal Jeff alone.
It's safe to say Jeff is the wealthiest person that has ever lived, short of fantastical examples like Genghis Khan. Gates hit near $100b ($152b inflation adjusted) during the peak of the dotcom bubble. However, logically only some split of that $100b should be exclusively credited to him, as he was of course married to Melinda, whereas Jeff is worth $150b alone. By contrast, Rockefeller was likely never worth more than $25 to $50 billion (inflation adjusted; at his peak it's thought he might have approached $2b in his day; the historical record is certain he crossed $1b; the reasonable inflation adjustment back to the 1920s and 1930s is anywhere from 20x to 30x depending on how aggressive you want to be).
(ignore the stupid, yet persistent claims that Rockefeller would be worth $300-$400 billion today as an adjustment; those claims are not using any manner of proper inflation adjustment; instead, that's based on taking Rockefeller's wealth as a percentage of the US economy at the time, and then doing the same thing for the US economy today (eg if his wealth equaled 1.5% of GDP in 1928 or 1937, then 1.5% today would be $330b), a complete non-sense approach for numerous obvious reasons)
Why is that guaranteed? If a lot of companies that are using AWS experience declining business activity or even complete shutdown due to the recession, why couldn't AWS's revenues decline?
47 comments
[ 3.2 ms ] story [ 93.7 ms ] threadIt seems to me that EPS is just earnings divided by an arbitrary number. Why not look at operating profit as a percentage instead?
(Earning / Price) is not a typical metric, (Price / Earnings) (i.e. PE Ratio) is the more typical metric. These metrics are meant for casual/institutional investors not lay people[1].
Meanwhile, if you still want (Earning / Price), you can do (1 / PE Ratio).
[1] If you aren't able to find the number of STOCK units you own or will purchase, then you are not a casual/institutional investor.
The number of shares you own is not arbitrary - it's actually a very important number to you. So you multiply how many shares you own, with EPS, and you know your personal profit.
In particular your profit per how much that share cost.
Obviously investing in stocks has other ways that you can make money, but EPS is pretty core to the whole thing.
If you want an overalls figure look at their financial statements.
Yes, if you're curious how well a particular company is doing over time, then it's arbitrary and not very helpful. But if you are comparing the relative value of a single share of company A vs company B, then it's helpful.
(Which is then also related to the sibling comment about dividends).
Probably the EPS metric made more sense before Excel.
Even though the # of houses in a city is arbitrary, when you buy a home, you want to know how much Rent Equivalent are you getting every month. Now, you can clearly price the house.
Of course that's only a superficial analysis. You have to take into account the book value (asset value). If the company is high growth. What industry it's in. Whether a change in earning per share is due to a one-time event. Etc.
This seems huge. Spending all $4 billion of their expected Q2 profit on covid-19-related things, including developing their own tests.
Committing to spending all of your future profit (which seems like a huge statement on its own) aside, anyone know how this compares to what other companies (or even governments) are spending on safety/testing? Trying to get a sense for the scale here.
I don’t know if any company putting 1/10 of that kind of money into an effort like that. (I’m excluding drug companies for obvious reasons.)
As for governments, given the difference in measurements, it’s hard to compare. For instance, do you count lost tax revenue? I’d bet several states surpass that, and probably a few big cities come close (NYC & LA come to mind).
I think they absolutely had to say something to placate the rising tide of voices against their monopoly and for their contribution to so many retailers' downfall- even without COVID. This will earn them some brownie points as in "Oh- AMZN's sales went up but at least they were not gouging- they invested all their profit in improving their service and employee benefits"
I’ll give Amazon props when they start supporting warehouse unionization, lobby the govt for a carbon tax, sell off Whole Foods, AWS, amazon basics + all in-house home goods into separate entities. Of course that will never happen because anything that actually stops the harm that Amazon does would be detrimental to the business.
So which is the noble big company you support? Which has sold of all diversified businesses? A company doing what you are suggesting will not even survive for long.
Amazon, Google, Apple, Exxon, etc. are all built on exploitation.
My point wasn’t that Amazon is more evil than other corporations, I think that’s only marginally true. Probably only because of how much more efficient they are than a lot of companies.
All of these systems suck, so let’s favor people who can lead voluntary large tribes over the politically connected, such as the politburo.
So, yes, when things like this leak out [0][1], you'd bet your bottom dollar that Amazon does really care about optics [2].
That said, I understand their predicament and I admire tough decisions they need to take to keep the business going [3] in a time where logistics is an absolute nightmare even at a smaller scale, but I don't, for one second, underestimate their will to bend rules and regulations to hit whatever bottom line metric they are measuring at any given point in time [4].
[0] https://news.ycombinator.com/item?id=22763057
[1] https://news.ycombinator.com/item?id=22738592
[2] https://news.ycombinator.com/item?id=21818233
[3] https://news.ycombinator.com/item?id=22604866
[4] https://news.ycombinator.com/item?id=22956182
i.e. Sell an equivalent item at a loss for an extended period of time to force a competitor / retailer out of business? Opening up a physical bookstore after essentially crushing that market felt like a "finger" to ex-businesses to me.
I think a lot of people are mad at Amazon for various things; undercutting mom-and-pop businesses in niche markets, paying people to deliver packages almost for free, busting warehouse unions, counterfeit items, etc. The solution is to not fund Amazon. Move your servers elsewhere. Shop at Target. Ask your representatives to make stronger labor laws.
But all in all, I don't think it's intrinsically wrong to start selling an internal tool and then end up making a lot of money from it. If Amazon weren't dominating online retail, someone else would be. Nobody wants to go to a store. It's boring and there isn't a very good selection. That is not the fault of cloud computing.
If they actually were selling products at a loss to put competitors out of business, that would be considered predatory pricing. Imagine Apple using their iPhone profits to sell MacBooks for $200 - it would distort the market and eliminate competition. It might be good for consumers in the short run, but much worse when they were the only game left in town.
https://slate.com/technology/2013/10/amazon-book-how-jeff-be...
Lawmakers don't do things when one person asks, they need significant public pressure. Publicly showing displeasure with how a company operates is usually the first step for that.
It's safe to say Jeff is the wealthiest person that has ever lived, short of fantastical examples like Genghis Khan. Gates hit near $100b ($152b inflation adjusted) during the peak of the dotcom bubble. However, logically only some split of that $100b should be exclusively credited to him, as he was of course married to Melinda, whereas Jeff is worth $150b alone. By contrast, Rockefeller was likely never worth more than $25 to $50 billion (inflation adjusted; at his peak it's thought he might have approached $2b in his day; the historical record is certain he crossed $1b; the reasonable inflation adjustment back to the 1920s and 1930s is anywhere from 20x to 30x depending on how aggressive you want to be).
(ignore the stupid, yet persistent claims that Rockefeller would be worth $300-$400 billion today as an adjustment; those claims are not using any manner of proper inflation adjustment; instead, that's based on taking Rockefeller's wealth as a percentage of the US economy at the time, and then doing the same thing for the US economy today (eg if his wealth equaled 1.5% of GDP in 1928 or 1937, then 1.5% today would be $330b), a complete non-sense approach for numerous obvious reasons)