1 Mind-Blowing Comparison of Apple and Amazon

A couple months ago when hedge fund celebrity David Einhorn was making a media blitz to sell his "iPref" idea to Apple (NASDAQ: AAPL  ) , he made an interesting comparison to Amazon.com (NASDAQ: AMZN  ) . He noted that Apple had generated over $20 billion in operating cash flow in the fourth quarter, which was "more money than Amazon has made in its entire life."

The fund manager also noted that both companies had similar price-to-sales multiples at the time. Apple has declined further since then and its P/S is currently 2.3, while Amazon trades at two times sales. Their earnings multiples are quite a different story, though, as Amazon has been reinvesting heavily in its infrastructure in recent years. Amazon posted a net loss of $39 million last year, rendering its P/E meaningless. The companies are two of the most dominant tech giants today and shape our digital lives, and are increasingly competing on numerous fronts.

I decided to go back and see if Einhorn's initial claim held up. Jeff Bezos founded Amazon in 1994, and the company went public in 1997. What started off as primarily a bookselling website has since transformed over the past two decades into the largest e-commerce platform in the world.

Like most young businesses, Amazon posted net losses for many years and wouldn't generate black ink until 2003 -- nine years after being incorporated. Net income would soar over the next few years until declining since 2010 amid aforementioned infrastructure investments.

Adding up Amazon's lifetime earnings as a cumulative figure, it doesn't even compare to Apple's profits in its most recent single quarter. Not even close.

Source: SEC filings.

Amazon's lifetime earnings have been $1.9 billion (which is also the amount of its retained earnings currently on the balance sheet), and only recently in 2009 did the company recoup its prior losses. Last quarter, Apple's net income was $13.1 billion, or nearly seven times Amazon's lifetime total.

Einhorn was seemingly referring to Apple's operating cash flow (which was higher than net income at $23.4 billion), but even just using the bottom line, it's clear Apple blows Amazon's lifetime earnings out of the water.

There is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (17) | Recommend This Article (37)

Comments from our Foolish Readers

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  • Report this Comment On April 19, 2013, at 7:44 AM, DanManners wrote:

    Very good point. Unfortunately Apple will keep falling. Each morning it is up a little enticing people to buy. Then it starts to crash. Down 1, 2, 5 pecent. Apple is going to 313 according to Richard Ross. of Auerbach Grayson. He is a great technician. He has never ever been wrong. At 313 I say next qtr earnings will drive Apple to below 300 and we trend down to the low 200s.

    Apple under Cook is doomed. Analysts keep saying we are almost there. Ennis Tanner said that. but we are not done. Cook will not stop until Apple is at zero. He obviously is the worst CEO Jobs could have picked.

    Are we having a TV coming. Wow a TV that is so innovative. Ross asked on CNBC will they have Pong on it? That was pretty funny.

    Apple is over. Companies are over and new ones start. Lets get out now and enjoy the fall of Cook and we can hate him without our stock losing money. This guy is one arrogant CEO who said he feels your pain. If you feel it, do something about it.

    Lets get our coffee and bagel and watch the stock get ready to tank another 2% again today. Wow below 380? Who would have thought. next week after earnings get ready for the mother of all stock drops. No dividend or buyback announcement will also help to kill shareholder sentiment.

    Cook is on our wall of shame.

  • Report this Comment On April 19, 2013, at 7:50 AM, DanManners wrote:

    Wow the market will be so excited to have an iphone 5 which looks the same, does basically the same thing wit a few minor updates. Of course there will be another maps type issue as there always is. Purple pictures or whatever we will have negative reviews on a boring shaped small sized phone. Wow fingerprint technology. If it even has that. Who cares. No one is going to buy a phone just to have that.

    I own both Galaxy 3 and Iphone 5 in my family. Both phones are good but the Galaxy is much nice looking and the new Galaxy 4 is so over the top. Apple has slippled and the stock will reflect that as it keeps heading towards zero. The cash could be used to buy back 1/3 of the stock right now. Then earnings will go up and that is the only way. Otherwise we get another 2 more earnings misses and this time they miss even Apples guidance. Sales of ipads, phones and macs are not selling anymore. the competiion is too good.

    Samsung will eventually have 90% of the market and Apple will return to being a niche player. Why buy an ipad for $ 400 when you can get a Chinese one for $65 running Android. As the chips get much faster, older chips will be fast enough for web browsing and the basic tasks of tablets. $65 could be $ 35 in the future. I would buy those and they would be disposed of when a better one came out.

    Apple is over. the fault is Cooks and just the natural progression of the market in the tech field. Apple is a great short and I would expect it to drop very fast from now on. $ 313 by next week.

  • Report this Comment On April 19, 2013, at 2:57 PM, TheRealRacc wrote:

    Interesting comparison for sure. Only makes it more clear how opaque market performance can be for an individual stock.

  • Report this Comment On April 19, 2013, at 6:08 PM, rojostyle wrote:

    'Richard ross has never ever been wrong?' That's believable. What are you 12?

  • Report this Comment On April 19, 2013, at 7:21 PM, eldetorre wrote:

    I keep saying this but no one gets it.

    Investors invest to make money! Investors make money on stocks in three ways, speculation that the price will rise or fall, or via dividends.

    Is apple a short play? No it makes too much money

    Is there a huge upside potential to Apples's share price? Not really. It makes lot's of money, but is it going will it to make so much more money that speculators will jump on it? Probably not. It's hit a steady income plateau. It's priced for that.

    Does Apple return value to shareholders...Absolutely not.

    The profitability of a company doesn't matter for investors, if they can't leverage the companies profitability for personal profit.

  • Report this Comment On April 19, 2013, at 8:08 PM, dwilh51183 wrote:

    IT JUST SHOWS YOU HOW STUPID INVESTORS ARE .THEY TRASH A GREAT COMPANY LIKE APPLE AND THEY BUY A RISKY COMPANY LIKE AMAZON. BUT ONE OF THESE DAYS APPLE IS GONNA REPORT A TRILLION DOLLAR QUARTER AND THEN THE CNBC GUYS WILL SAY "OMG" , AAPLE IS STILL THE KING! GOOD EARNINGS AND THEN NEW PRODUCTS, AND THEY RAISE DIVIDEND AND THEN EVERYBODY AND THERE BROTHERS WILL WANT TO PILE INTO THE STOCK AND THEY WILL WANT TO OWN IT ON THE WAY BACK UP TO $850 A SHARE

  • Report this Comment On April 19, 2013, at 10:33 PM, tkell31 wrote:

    "Apple is going to 313 according to Richard Ross. of Auerbach Grayson. He is a great technician. He has never ever been wrong."

    So it would then follow Mr. Grayson has all the money in the world? Oddly I googled him and he doesn't. For never being wrong he certainly hasnt capitalized on it. Expensive tastes I guess.

  • Report this Comment On April 20, 2013, at 1:10 AM, dgmennie wrote:

    Unless Apple starts paying a rich dividend to shareholders on a reliable, semi-annual basis, its stock will only be worth investing in for its expected upward movement. Of course nobody knows if it will someday sell at $50/share or $5000/share, nor can you count on projected expectations to pay your monthly utility bill. Apple: a great company, sells great products, but there is no idication it will ever regularly share its success with investors.

    As poster eldetorre has just said:

    "Is there a huge upside potential to Apples's share price? Not really. It makes lot's of money, but is it going will it to make so much more money that speculators will jump on it? Probably not. It's hit a steady income plateau. It's priced for that.

    Does Apple return value to

    shareholders...Absolutely not."

  • Report this Comment On April 20, 2013, at 10:52 AM, dxgmmpa wrote:

    I am not long Apple and own no Apple products, but it is a tad harsh to say that Apple has lost their technical Mojo forever just because they are pricey and PCs are passe. They is something in marketing called brand loyalty and Cache. Apple will be back. It was never a low cost provider anyway.

  • Report this Comment On April 20, 2013, at 12:32 PM, Darwood11 wrote:

    The real lesson to be learned here is to avoid hype.

    Amazon has been touted and held on a pedestal for a couple of decades.

    As I told a relative, who was a stock broker back in 2000 and was pushing the wonders of Amazon and just about everything else that was "hot" back then "It's all about perception." In other words, it's really about so called "investors" perception of what the stock is worth.

    That relative has since gone on to stints as a day trader, a real estate broker and is currently a banker.

    He's been somewhat of a typhoid Mary, going into a new profession, and I've come to see that where he goes, disaster follows. I think his mindset is "this is the next great thing" but he usually comes to that conclusion far, far too late in the game.

    As for AAPL, it's been struggling to come up with the "next great thing" since before Cook. I think it's unfair for some to hold him solely responsible.

  • Report this Comment On April 20, 2013, at 2:50 PM, jrandallc1 wrote:

    Are they struggling for the next big thing? Where did that come from? We have no idea because Apple is secretive but Jobs has only been gone for a little while so whatever products are coming out were developed under him.

    We will see what Apple does over the next 24 months. That timeframe, IMO, will determine their next 10 years. The next generation of Apple products needs to entice existing Apple buyers to upgrade or delve into a new realm (Apple TV). Apple has such a big following that if they come out with a good next generation they will be rolling in cash again and selling for $800.

  • Report this Comment On April 25, 2013, at 3:55 PM, melmill wrote:

    So really, all we have here is yet another forum for people to rant (pro or con) about Apple. The actual article about the "amazing" comparison of Apple and Amazon is silly and a waste of time.

    You can have an equally riveting comparison of oranges and orangutans. Hey! they both start with the letter O.

  • Report this Comment On April 25, 2013, at 6:23 PM, jordanwi wrote:

    It's becoming depressing as an Apple shareholder that the Apple bulls are sounding more and more like religious fanatics. Settle down! Take the caps lock off! There are real reasons for Apple's stock price to be falling, deal with it.

    I somewhat agree with the dubious nature of the comparison, however, I would find a comparison of iTunes vs Amazon to be worthwhile. I have a feeling iTunes' profits alone are considerably larger than Apples, which gives me pause when affording Amazon such an enormous PE multiple. I also think Google could roll over and crush Amazon, but that's another argument altogether.

  • Report this Comment On April 25, 2013, at 6:24 PM, jordanwi wrote:

    *Than Amazon's. Blerg.

  • Report this Comment On April 26, 2013, at 10:43 AM, driller101 wrote:

    In accounting 101, I learned that capital expenditures (investments in infrastructure) are not expensed in the current year. So how does investing in ifrastructure reduce earnings?

  • Report this Comment On April 26, 2013, at 11:41 AM, VOLCANOPUKER wrote:

    Isn't Motley Fool great? What a great article. This all very very very very very good info. Let us all stay informed with quality info. We want to invest in quality companies. Apple Apple Apple. Amazon Amazon Amazon. Thanks for the insightful article. What was the point? Oh yeah, lets go look at the chart... I can see from an incomplete chart that the point was spam and advertising by Time Warner. Mr. Niu, this article makes you look dumb.

  • Report this Comment On April 26, 2013, at 9:35 PM, banmate7 wrote:

    Americans really deserve everything they get. The average person insists on behaving irrationally when it comes to the market. It's all too easy for the media to set sentiment that compels the average person to sell lower and buy higher. Small wonder why annual returns are so poor overall for most people.

    The comments here illustrate this as well. One commenting fool here...and I mean that literally, not in the Motley Fool figurative sense...insists that Apple is finished. Why? Because an alleged authority says so.

    There is no discussion of fundamentals. No reference to excellent cash flow, balance sheets, a $140 billion war chest, world class R&D, and an established cloud and mobile computing ecosystem. No reference to EPS or BVPS.

    The same fools denigrate Microsoft as a has been. Interesting. I'm up 55% in total from a buy I made here in 2007, reinvesting dividends. Almost same result in Johnson & Johnson. Coca-Cola returned 137%. IBM 100% during this time.

    Yet the pundits would steer me to Amazon, LinkedIn, SalesForce, GroupOn, and Facebook. Poor working Americans wind up in these overvalued companies, thanks to active mutual fund managers who follow the sentiment...although one can be forgiven for thinking that there is something more malevolent going on here.

    Make no mistake, I take advantage of market irrationality. I practice value investing rigorously, winning consistently, picking up great North American companies at cheap prices. Basic Benjamin Graham & Warren Buffett stuff. I expect the same consistency of results with Apple, exactly because the number support it.

    But Americans sure would be better served if they understood cash flow, balance sheets, and value investing. At the very least, Americans should understand how active mutual funds compromise gains by chasing value at the behest of smart money...essentially transferring wealth from the former to the latter...and, yes, investors like me.

    I'd rather have smoother, less volatile markets where gains are better distributed. For that to happen, finance should be taught all throughout high school.

    But for now, the beat goes on. Amazon and SalesForce will be favored over Apple, IBM, and Oracle. Good luck with that.

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