Not Quite Mr. Roberts

2017 July 30
by drdog09

Apple with a share price of $150 earned $52.9 billion during the second quarter of 2017. Earnings per share were $2.10.

Amazon.com earned $38 billion. Earnings per share were 40 cents.

Why is amazon.com’s price $1,046 per share and Apple’s price is $150.56 per share.

Apple’s earnings per share are 5.25 times higher than amazon’s, but amazon’s stock price is 6.9 times higher than Apple’s. What explains this?

The free market answer is that amazon.com, a company that sells other companies’ products, is more promising than a high tech leading manufacturing company of our time.

Does that make sense to you?

Keep in mind that it was Bezos’ government propaganda sheet, the Washington Post, that gave credibility to the shadowy organization, PropOrNot, an entity better hidden than an offshore money laundering operation, that produced a list of 200 truth-tellers which it libeled as “Russian dupe/agent.”

Monopolies are inconsistent with free market capitalism and with democracy. Monopolies and government bond together to create fascism.

RTWT

Mr. Roberts is attempting to develop a conspiracy where might not be one. His veiled theory being that AMZ price is being propped up by the govt in exchange for information. Now it is a good one, for if I wanted to detect shifts in attitudes it would be reflected in a shift in buying patterns as well. The problem is the difference in stock PE’s can be explained at least partly by other means. Time for the parsing party —

Perceived Industry Classification.
The SIC for Apple is still a computer company. But that was earned 40 years ago when Apple mostly sold computers. The proper SIC for Apple should be either consumer electronics or an ODM (Original Design Manafacturer). Technically the biggest part of their sales, iPhone and iPad, they designed but they don’t build it. Foxxcom does that for them. If we view Apple as a consumer electronics company their PE is in line with the industry average. The industry PE floats between 15-20. APPL annualized PE for 2016 was 18.

Lets look at Amazon. AMZ’s SIC is listed as retail trade. But yet again I propose that is the wrong classification. Amazon does not compare to a Sears or Macy’s for one simple reason — they don’t BUY the vast majority of the products they sell. (Dot, Kindle, etc being exceptions.) Amazon is more akin to eBay in that regard. What is eBay’s SIC? — Computer Processing and Data Preparation! Looking at that slice of the pie, the PE’s for the majority are in the 50’s and above. Both eBay and Amazon operate on the theme of taking a slice of the action for the seller using their platform.

Full disclosure notice —

A quick look at P/E ratios for Apple Inc (AAPL) and Amazon.com Inc (AMZN) illustrates the dangers in using only the P/E ratio to evaluate a company. Apple was traded at $92.18 with a P/E ratio (TTM) of 15.34. On the same day, Amazon’s stock price was $334.38 with a P/E ratio of 511.06. One of the reasons Amazon’s P/E is so high is that it always reinvests its earnings. If you were to compare these two stocks based on P/E alone, it would be impossible to make a reasonable evaluation. A low P/E ratio doesn’t automatically mean a stock is undervalued, just like a high P/E ratio doesn’t necessarily mean it is overvalued.

Source

The point of the mis-SIC is that it tends to explain the PE gap if you look at the industry class both are REALLY in.

Cross Sales Strength
For Apple they have three core areas – Computers, Consumer Electronics, Distribution thru iTunes. Computers, as an industry is lumped in with the same malaise as television/audio — expensive production base, major competition and thin margins. Product introductions don’t have the same ‘pop’ to the bottom line they did 20 years ago for any of the sellers, including Apple. Cross pollination between it and the other two lines are weak.

Apple’s strongest play its between its iAnything line and iTunes. iPhone being the flagship product category.
Look at this chart. What is interesting is that unlike in previous years iPhone where sales were peaky but steady, later years are very spiky. A lot of first mover sales on new models then a deep flattening out in subsequent quarters. iPhone is the majority of Apple’s revenue stream. iTunes on the other hand represents a good balance of the remainder at $16Bn in sales last year.

Amazon has approximately 3 lines — Marketing($61Bn), Video($1.9Bn) and Amazon Web Services($3.6Bn). The video via prime and AWS are posting 40+% increases in sales as of 1Q17. Apple by comparison will probably post $210Bn for 2017 but nowhere near the same sales increases. Amazon on the surface should be the weaker sister.

Operational Differences
Both companies have synergies between product lines. But Amazon to its immense credit turns an expense (data processing costs) into a profit (increased AWS sales) through the magic of cross division pricing a very old corporate trick. It ITunes needs more data processing muscle it pays for it and records it as a capital entry on the books. Amazon? Heh, Marketing turns to AWS for increased fractional storage/processing/transport and records it as a operational expense. AWS on the other hand records it as a sale.

The magic occurs in the bookkeeping. Apple via iTunes enters into a MACRS depreciation for their purchase. Amazon? Well yes AWS if it needs additional assets does a MACRS as well. But AMZ Marketing use of AWS is written off as an expense fully in the year used. A smart CFO can parley that inter-divisional play to their tax advantage.

Finally there is the nature of how people perceive the two companies. Apple has traditionally returned a fair portion of profits back to the shareholder via dividend. Amazon on the other hand is viewed as a growth stock play. So long as management is delivering the sales figures and the expansion targets the stock price shall always be higher vs shareholder dividend. And customer perception? Apple sells products worldwide. Amazon sells all the worlds’ products.

Sorry Mr. Roberts but not everything in the world has to be explained by a conspiracy.

26 Responses leave one →
  1. 2017 July 30 5:50 am
    [1]
    bc3b permalink

    ebayis practically the only competition amazon has that sells across most lines.

    You have probably read the recent article that the USPS subsidizes amazon $1.46 for every shipment,

    http://fortune.com/2017/07/16/amazon-postal-service-subsidy/

    This received very little coverage from the MSM.

  2. 2017 July 30 5:58 am
    [2]
    drdog09 permalink

    By the way, if you ever wondered about the country of origin for products Amazon sells there is a way to do it. (Caveat this is not 100% which I shall explain in a moment)

    1) Grab the ASIN number from the Amazon web page that the product is on. It is usually in the technical specs area.

    2) Go here for a ASIN to UPC conversion. You should receive a UPC equivalent. If not, stop here it is not convertible.

    3) With the UPC data go to this table. Match the first three numbers in the UPC to which country is the source in the table.

    If you wish try this ASIN number — B007Y91B80

    Why it won’t work at times: Early on Amazon had but one global marketplace on their platform. But sellers made it known that they only wanted to sell to certain regions. As a consequence Amazon did a split into different market regions. Though Amazon dictates to sellers that they must have a barcode, guess what? There are different barcode standards on different areas of the planet. So, there are two certainties; ASIN to UPC works for a globally assigned ASIN and for regional ASIN numbers that are targeted for US/Canada/Mexico. Any other ASIN is an iffy proposition.

    Why Amazon does not list CoO is a disservice to the buyer.

  3. 2017 July 30 7:27 am
    [3]
    drdog09 permalink

    The voice modulated story about Schultz popped up once before. Got not traction — http://www.zerohedge.com/news/2017-07-29/fox-airs-allegations-awans-aided-wasserman-schultz-voice-altered-phone-calls — Its back. Maybe second time is a charm?

  4. 2017 July 30 8:13 am
    [4]
    drdog09 permalink

  5. 2017 July 30 8:23 am
    [5]
    drdog09 permalink

    Egypt. Kudos to the tank driver — https://www.youtube.com/watch?v=oXD1heMN_Ss

  6. 2017 July 30 8:31 am
    [6]
    justrand permalink

    Drdog, the DNC is so corrupt, they would rather surrender this country than surrender Shultz.

  7. 2017 July 30 12:02 pm
    [7]
    drdog09 permalink

    JR,

    Can’t disagree with that observation.

  8. 2017 July 30 12:58 pm
    [8]
    Eph permalink

  9. 2017 July 30 1:23 pm
    [9]
    bc3b permalink

    Eph #8 –

    It cuts both ways. See my post tomorrow.

  10. 2017 July 30 2:05 pm
    [10]
    Eph permalink

    BC

    ME thinks the GOP is working behind the scenes to give the Dims control of Congress in 2018.

    Because they hate Trump…

  11. 2017 July 30 2:33 pm
    [11]
    bc3b permalink

    E ph –

    SWhat makes you think the GOP really wants to be in control? With control comes responibility. They can’t blame Democrats for their promises being broken when the GOP controls both houses of Congress.

  12. 2017 July 30 3:31 pm
    [12]
    Eph permalink

    BC

    Trump won’t Make it to 2020, and the Dims get 400+ EVs in the next presidential election.

    http://www.breitbart.com/national-security/2017/07/28/clarion-tillerson-standing-muslim-brotherhood-terror-designation/

  13. 2017 July 30 3:59 pm
    [14]
    drdog09 permalink

    13,

    GOPers are making a big mistake. If they isolate Trump they put him in a ‘I am screwed anyway so I might as well go Nukular.’ frame of mind. On OCare the Dims structured the whole mechanism to be in the Executive cause they thought they would hold the WH forever. Which means Trump has the levers. What are they?

    a) He can rescind the insurance support payments to the insurers.
    b) He can unilaterally rescind the carve out for Congress on their healthcare.

    Now as I opined elsewhere, Trump is playing the biggest game of chicken since the Cuban Missile Crisis. His bet? That he can cause the OCare system to go into collapse before he leaves office. If he wins Congress will crawl to him on his terms for a ‘fix’.

    Putting the man in the box will not help the Congressional cause as they expect it to.

    By the way did anyone here think to ‘drain the swamp’ that the alligators might not get a little upset? I hope not. The reaction is exactly what I expected as prefaced in the Sparta article.

  14. 2017 July 30 4:51 pm
    [16]

    “If he wins Congress will crawl to him on his terms for a ‘fix’. ”

    Trouble is that “fix” might be single payer that trump has called
    for in the past.

  15. 2017 July 30 4:58 pm
    [17]
    Eph permalink

    16 IP,

    Exactly. Which Trump shows up when the shit hits the fan???

  16. 2017 July 30 5:05 pm
    [18]
    drdog09 permalink

    17,

    Did not say it would be good, just that it shoves the entire landscape in his favor.

    The one that shows up by then will be out for revenge. Hell he could recommend an open ended HSA with carry forward tax provisions. (would love that one!) Who knows.

  17. 2017 July 30 5:09 pm
    [20]
    drdog09 permalink

    15,

    Women drivers. They probably started bitching about their SO’s and abandoned the checklist.

  18. 2017 July 30 5:10 pm
    [21]

    Let the mother of all shits hit the fan, so that this good ship USS garbage scow will sink faster so we can start the rebuild sooner. Nihilism is our friend. Our military leaders have sold out to the trannies/homos, our so called conservative congress pukes have embraced soc medicine,the GOP senate has joined one big circle jerk/firing squad, etc fuk em all.

  19. 2017 July 30 5:16 pm
    [22]
    Eph permalink

    21.

    What he said!!!

  20. 2017 July 30 5:22 pm
    [23]
    drdog09 permalink

    BC,

    Here’s something you can use — http://dailywesterner.com/news/2017-06-24/like-blacks-beaners-are-also-retarded-illiteracy-among-hispanic-immigrants-persists-across-generations-according-to-report/

    Here is what I find interesting. For years Whites had the forbearance to hold their tongue about race and the failure of Affirmative Action. But now? Ever since Ferguson/BLM/AntiFA the dam has broken and I see more and more reports of the under-performance of minorities in any number of skills tests/assessments/reports.

  21. 2017 July 30 5:29 pm
    [24]
    drdog09 permalink

    Case in point. Perp doing the strut on Facebook gets a free SWAT raid for his trouble — https://youtu.be/jZ3jx13_-BE — Funny as hell!

  22. 2017 July 30 5:59 pm
    [25]
    drdog09 permalink

    Another Hitler video — https://youtu.be/raOpM1Xj3Ck

  23. 2017 July 30 6:41 pm
    [26]
    bc3b permalink

    drdog09 #23 –

    As the national IQ study I frequently post shows, black African nations have the lowest national IQs. When you eliminate the Castillians from Mexico (and virtually no illegals are Castillians), it’s not much better. Neither is Central America. Slaves were selected and bred for physical strength, not brilliance. That’s why there are so many great black athletes and so few black scholars. The 73% illegitimacy rate doesn’t help either. People with low IQs produce low IQ children just as a tall man and woman are likely to produce tall kids.

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