"Right, but Amazon is in a heavy infrastructure, heavy competition, low margin business. And their margins are small and getting smaller. 2% or so IIRC."
Amazon's gross profit ran north of 20% last quarter. (http://www.google.com/finance?q=NASDAQ:AMZN&fstype=ii) They're a dominant player in both online retail and cloud services, they're now providing cloud services to government entities, and they're growing like crazy. They're hiring like crazy and that's driving down their net income (I think they hired like 30% of their employees in the past year.) The market clearly believes they're on their way to double or quadruple their business over the next few years as more shoppers go online and more services go to AWS.
Apple is doing great, but they're 4X the size of Amazon in terms of market cap, and arguably at their "peak" in terms of everything going their way. They're going to keep growing, but they're already the largest company by market cap... are they likely to double? The market doesn't seem to believe that. Is that right? I don't know... it just seems to be what the pricing currently indicates.
Edit: It's also worth noting that spending on infrastructure does not have the same effect as spending on employees. Infrastructure costs are spread out over the life of the equipment, whereas payroll is expensed as incurred.
I'm totally in agreement about Apple being big, and I don't see them becoming 4x bigger than the next largest company. I think, from a financial POV it would make sense to spin stuff off, so that each part has a chance to become as big as the whole. From a synergy POV, that's daft. Apple gets a ton of benefit from being one unified whole. Apple's big issue now is to avoid replaying the sideways fall of microsoft in their own way.
Amazon's cloud services are small, looking like estimated 750 million this year vs something like 40 billionish sales for the year. Their expenses look roughly consistent on a yoy basis, the last couple of quarters are pushing up the r/d spending, but that's possibly the difference between quarterly revenue (strong variation within the year) and a constant increase in r/d. That might be shaving a bit off, but it doesn't change the nature of their business. Amazon makes most of their money selling other people's physical goods. They mark them up. They are competing on price with WalMart, Target, and the wholesale club stores. On the other hand, they're competing well with local businesses by shipping stuff for free and providing a consistent customer experience.
They're totally different companies. My rational expectation is that Amazon would be a low PE stock, and Apple would be high. I'm not going to short things waiting for the market to come around to my sense of rationality.
Amazon has nearly doubled their employee base in the last two years, and most of those hires were higher-paid "corporate" employees rather than fulfillment center hires. The expense structure may look the same but it's not, they've clearly explained that each time they do an earnings call and the market has backed them up on it - their stock has solidly outperformed Apple's for several years.
There's an earnings quality argument here as well: As a consumer electronics company, Apple's long term value is predicated heavily on their ability to stay "on trend" and keep delivering hot new products. Amazon doesn't have that pressure - whatever's popular, they'll be selling, and earning from things like government contracting are fairly stable as well. You get more market cap per dollar of earnings if those earnings are more likely to persist long-term.
I see their changes, now, with their latest results. It doesn't look like the market really expected the lack of profit though, so it will be interesting to see where the stock ends up soon.
I'd like to own amazon stock for the long haul, I'm just not into spending quite the premium that the market wanted recently. If they get beaten down enough, it'll be time to buy.
Amazon's gross profit ran north of 20% last quarter. (http://www.google.com/finance?q=NASDAQ:AMZN&fstype=ii) They're a dominant player in both online retail and cloud services, they're now providing cloud services to government entities, and they're growing like crazy. They're hiring like crazy and that's driving down their net income (I think they hired like 30% of their employees in the past year.) The market clearly believes they're on their way to double or quadruple their business over the next few years as more shoppers go online and more services go to AWS.
Apple is doing great, but they're 4X the size of Amazon in terms of market cap, and arguably at their "peak" in terms of everything going their way. They're going to keep growing, but they're already the largest company by market cap... are they likely to double? The market doesn't seem to believe that. Is that right? I don't know... it just seems to be what the pricing currently indicates.
Edit: It's also worth noting that spending on infrastructure does not have the same effect as spending on employees. Infrastructure costs are spread out over the life of the equipment, whereas payroll is expensed as incurred.