Biggest reason for this is that Wall Street has noticed the huge cash pile that Apple is just sitting on. A good chunk of their market cap is made up of this cash pile that they are reinvesting through their hedge fund.
There's a reason why Amazon keeps going up even though they are barely profitable. Amazon keeps reinvesting their profits into the company's R&D rather than throwing it in the bank.
I would pick Apple. I have a feeling that in 10 years they will have re-invented themselves and be making huge profits, and paying dividends on those shares.
For example, 100k of Apple shares today will net me 265,000 USD. Assume that I decide to just pocket that money ... I could live off that for a full year, easy. They pay that every quarter (or at least that's the case at the moment). I'll make money now, be able to stick it into a savings account or re-invest it into other stocks.
If you gave me 100k in Amazon i'd be grateful, but keeping it for 10 years means that in the mean time it is useless to me. No dividends, trading at an excess that is absolutely insane, it will come crashing down eventually. Apple at least at that point has cash to continue operations, Amazon doesn't.
I would probably go with AAPL. AMZN is currently trading at over 3,000 times earnings; their forward P/E is in the 150 range. They are mainly an online retailer, and retail and high profit margins usually don't go hand in hand. I expect them to grow, but it's hard for me to imagine a plausible scenario in which their growth matches their current valuation.
Also, Apple pays dividends, and they have enough cash to operate for 1-5 years on zero sales. They are better positioned (IMO) to reinvent themselves without being rushed, and at the same time minimize the potential negative impact of that reinvention to their shareholders.
I would also take Amazon - although they're huge they don't yet deliver everything you can buy (think groceries) and they have other services like AWS and Mechanical Turk that are growing and are without peer in their markets.
As for Apple, I think they will have a harder time staying at the forefront in a very competitive market now that the iPhone and (to a lesser extent) iPad are no longer have the "wow" factor that they used to.
Can I take 80K AAPL, 20K AMZN (the rough proportion of their market-caps)? I want the 100K, but don't feel any need to prove I can beat the market in such massively-held stocks.
Strange I think AAPL is the incredibly obvious choice here.
If Amazon grows their revenue at 40% every year (like they did in 2011) and manages a 3.5% margin (which they did for years although lower at the moment) then they will start seeing profits like AAPL's 2012 around 2021.
Meanwhile if AAPL grows at only 15% a year (and the trend is currently much higher) their numbers will have quadrupled in 10 years.
Keep those same growth rates and sometime around 2028 AMZN surpasses AAPL in annual profits; right around the time they hit $15 trillion in annual revenue.
I'm not all that confident that Apple can grow for 10 or even 15 years at any rate. There's a substantial risk that it all falls apart and we're all watching Zuck put his company logo on the new Apple headquarters when it finally opens. But the idea that Amazon has some magic profit engine that's going to appear sometime way down the road and justify their P/E ratio isn't just crazy, it's bananas. If anything they're already starting to succumb to the law of large numbers.
Definitely AMZN. They have two really strong, complementary markets, retail & cloud computing. This gives them longevity and the ability to weather some pretty tough storms. They have shown themselves to be agile and flexible and responsive. Look how much innovation and development happen at AWS; they release something new and improved almost every week. Plus, Jeff B. is still holding the reigns.
I think AAPL have done amazing things the past 10 years, including outstanding hardware & software, perfect marketing, and a great user experience overall. I also think that they have peaked and there is nowhere to go but down. Granted, it will take a long time to hit the bottom, but they will join the ranks of IBM & Microsoft; irrelevant and ignored.
People emotionally overreacting to the slight revenue miss (by slight I mean missed over-hyped analyst expectation by 1%). It's bizarre to see that fundamentals are completely disregarded when it comes to trading the company with the highest market cap in the world.
Every time something like this happens, I always ask myself: who the hell are these analysts and why are they picking such crazy unrealistic numbers? A company can have record revenues and profit and still get punished by the market because some analysts say they should've made more. If everyone ran their company for shareholders and analysts, there'd be a lot more Dells and HPs and less Apples and Googles.
Apple is in the category "growth company" and needs a growth story to justify its value. When the roof comes in sight, as it does currently, the party is over.
They've essentially refreshed their entire line of products, leaving a wide open field for 2013.
Makes me wonder what they've got in their pipeline. If it's just spec bumps and incremental improvements to existing products, they may not have what it takes to excite. If they have a product or products that enter into new markets, they could return to the $700 levels we saw before.
What I expect in 2013? What markets are untapped?
1. Apple TV will be opened up to app developers.
2. Apple will release a wearable device (wristband, watch, something).
3. Something with home-automation or smart-home technology.
You weren't expecting him to say "yeah, we're just going to do an iPhone refresh and a retina iPad mini, and maybe refresh the Macbooks, if it's ready we'll do One More Thing wink wink", were you?
Are they still considered a "growth company" when their stock is trading at 11 P/E? Hell, it's barely considered a growth stock P/E when it was at 700 a share. If it's treated as the same type of growth company as even Google then AAPL would be worth close to $1000/share now.
"We aren't interested in revenue for revenue's sake, we could put the Apple brand on a lot of things and sell a lot more stuff. The most important thing to us is that our customers love our products, not just buy them but love them."
I hope that their current market capitalization won't make them modify their pace and be disturbed by this noise. I hope they won't rush out new products just for the sake of making Wall Street happy. Keep iterating, keep hard working on non-public stuffs, there is no hurry.
It's crazy they they sell a very conventional, understandable thing, a globally recognizable product of unlimited magic, that nearly every person of means in the world has or wants—and yet the market hammers them hard on a 0.7% miss on expected revenue in a quarter with 8% fewer days than 2012Q1.
Here's what I think they should do: Tim Cook needs to become a narcissistic billionaire who parrots about polyamory and militant libertarianism. Now that's what Silicon Valley is all about. $$$.
What's more crazy is that _profits_ (what truly matters) actually beat expectations.
I could start a business selling $100 bills for $99.99 and report back enormous revenue numbers. Hell, I could probably match Amazon's losses and revenues to a T - maybe Wall Street will reward me with a 2000 P/E ratio.
Apple was priced in part for being able to maintain consistent growth. Their latest results put this into some question, hence their value to investors drops.
If you think people haven't noticed that a quarter was shorter when pricing one of the largest, most prominent companies on the market, you're frankly out to lunch. Arbitrageurs would be on this in a heartbeat.
Because the best proxy we have developed for measuring "a globally recognizable product of unlimited magic, that nearly every person of means in the world has or wants"ingness is quarterly revenues.
I always had the sense that after-hours trading was volatile, often manipulated, and not indicative of near-term future performance -- are my assumptions incorrect?
33 comments
[ 3.1 ms ] story [ 77.9 ms ] threadThere's a reason why Amazon keeps going up even though they are barely profitable. Amazon keeps reinvesting their profits into the company's R&D rather than throwing it in the bank.
If you were offered $100k of Apple or $100k of Amazon right now, which would you choose? You would have to receive and hold for 10 years.
To me, the answer to that is obvious (AMZN), but I'm curious if my intuition matches up with the general opinion.
I'm not sure which would be a better sign.
ETA: Original intent was to talk about 100k in dollars, not in shares.
For example, 100k of Apple shares today will net me 265,000 USD. Assume that I decide to just pocket that money ... I could live off that for a full year, easy. They pay that every quarter (or at least that's the case at the moment). I'll make money now, be able to stick it into a savings account or re-invest it into other stocks.
If you gave me 100k in Amazon i'd be grateful, but keeping it for 10 years means that in the mean time it is useless to me. No dividends, trading at an excess that is absolutely insane, it will come crashing down eventually. Apple at least at that point has cash to continue operations, Amazon doesn't.
100k = 100,000. 100,000 * (currently) $514 = $51 million USD. You certainly could live off that for a year.
On second look, you are talking about dividends.
Also, Apple pays dividends, and they have enough cash to operate for 1-5 years on zero sales. They are better positioned (IMO) to reinvent themselves without being rushed, and at the same time minimize the potential negative impact of that reinvention to their shareholders.
As for Apple, I think they will have a harder time staying at the forefront in a very competitive market now that the iPhone and (to a lesser extent) iPad are no longer have the "wow" factor that they used to.
If Amazon grows their revenue at 40% every year (like they did in 2011) and manages a 3.5% margin (which they did for years although lower at the moment) then they will start seeing profits like AAPL's 2012 around 2021.
Meanwhile if AAPL grows at only 15% a year (and the trend is currently much higher) their numbers will have quadrupled in 10 years.
Keep those same growth rates and sometime around 2028 AMZN surpasses AAPL in annual profits; right around the time they hit $15 trillion in annual revenue.
I'm not all that confident that Apple can grow for 10 or even 15 years at any rate. There's a substantial risk that it all falls apart and we're all watching Zuck put his company logo on the new Apple headquarters when it finally opens. But the idea that Amazon has some magic profit engine that's going to appear sometime way down the road and justify their P/E ratio isn't just crazy, it's bananas. If anything they're already starting to succumb to the law of large numbers.
I think AAPL have done amazing things the past 10 years, including outstanding hardware & software, perfect marketing, and a great user experience overall. I also think that they have peaked and there is nowhere to go but down. Granted, it will take a long time to hit the bottom, but they will join the ranks of IBM & Microsoft; irrelevant and ignored.
EDITED to add: ah, I see they released earnings.
Makes me wonder what they've got in their pipeline. If it's just spec bumps and incremental improvements to existing products, they may not have what it takes to excite. If they have a product or products that enter into new markets, they could return to the $700 levels we saw before.
What I expect in 2013? What markets are untapped?
1. Apple TV will be opened up to app developers.
2. Apple will release a wearable device (wristband, watch, something).
3. Something with home-automation or smart-home technology.
> We're working on some incredible stuff. The pipeline is chock full. We feel great about what we've got in store.
At the same time, two anti-Apple posts float right to the top.
People sure do resent success.
"We aren't interested in revenue for revenue's sake, we could put the Apple brand on a lot of things and sell a lot more stuff. The most important thing to us is that our customers love our products, not just buy them but love them."
I hope that their current market capitalization won't make them modify their pace and be disturbed by this noise. I hope they won't rush out new products just for the sake of making Wall Street happy. Keep iterating, keep hard working on non-public stuffs, there is no hurry.
Here's what I think they should do: Tim Cook needs to become a narcissistic billionaire who parrots about polyamory and militant libertarianism. Now that's what Silicon Valley is all about. $$$.
I could start a business selling $100 bills for $99.99 and report back enormous revenue numbers. Hell, I could probably match Amazon's losses and revenues to a T - maybe Wall Street will reward me with a 2000 P/E ratio.
If you think people haven't noticed that a quarter was shorter when pricing one of the largest, most prominent companies on the market, you're frankly out to lunch. Arbitrageurs would be on this in a heartbeat.