Please ensure Javascript is enabled for purposes of website accessibility

1 Mind-Blowing Comparison of Apple and Amazon

By Evan Niu, CFA - Apr 18, 2013 at 7:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Hedge fund celebrity David Einhorn recently made a bold comparison of Apple and Amazon regarding lifetime profitability. Does his claim hold up?

A couple months ago when hedge fund celebrity David Einhorn was making a media blitz to sell his "iPref" idea to Apple (AAPL 0.17%), he made an interesting comparison to Amazon.com (AMZN 0.25%). 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$137.59 (0.17%) $0.24
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,151.82 (0.25%) $5.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
331%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/21/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.