Amazon built AWS which is a one of a kind opportunity (well, others like MSFT and GOOG are trying to built their own versions). But to think that Carvana and Zillow could ever have anything like AWS…not going to happen. So how much of Amazon’s market cap is AWS? I’d say a pretty big chunk of Amazon’s current market cap is AWS.
I actually think Amazon Web Services is under-valued by the market. It’s hidden within the dominating retail presence. I wish they would spin that damn thing out. Amazon’s PEG is 0.72. And their P/S is 3. Berkshire Hathaway is buying Amazon, that’s how damn cheap it is.
I think most of Amazon’s growth (now) is from AWS, and a lot of their profit margin is from AWS. It’s interesting to speculate what kind of stock monster Amazon would be if all they had was the retail business. I’m of the opinion almost all of their market cap is due to the retailing business. Spin out AWS, and let’s so what kind of multiple that high-growth, high profit margin business would get from the market. Let’s put it this way–this board would be very excited about that AWS ipo.
What you are suggesting is that Amazon the retailer was not a monster stock, and AWS saved their ass. I can see why you think that way, but I fundamentally disagree.
Wal-Mart had their IPO in 1970. Intel had their IPO in 1971. These are two huge and important companies, right? One’s a high margin, high profit tech business. And one’s a retailer based in Arkansas who sells stuff cheap.
Intel market cap today: $200 billion
Walmart market cap today: $289 billion
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The retailing juggernaut was a better investment than the guys who invented the computer chip. That’s counter-intuitive, but that’s the way it worked out.
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Suppose you bought 100 shares at the Walmart IPO in 1970. $16.50 a share. That would be $1,650. Now suppose that was your only investment in the stock market. And you held it for 25 years. It would be worth $2,713,600 on January 31, 1994. Now suppose you had a bad experience in a Walmart. And you got mad and sold your stock and paid all that capital gains and you went on vacation to the Caribbean and you wanted to buy a Maserati and all that stuff. And you farted around for a couple of more years. And then you decided to pull yourself together and invest in the stock market again. And it’s 1997. And you had some success with retailers. So you decide to buy that new internet retailer, Amazon. Because people are saying Amazon is way better than Walmart. So you take what’s left of your $2.7 million and invest it in Amazon at the IPO. You’re buying 100,000 shares at $18 a share. That’s the only stock you like to buy, retailers, and you like to buy the best one. So now you’re an Amazon bull. And you have a 2-for-1 split, and a 3-for-1 split, and a 2-for-1 split. (Man, I miss splits!) Anyway, now you’re holding 1,200,000 shares of Amazon. And you’re a dummy, so you hold and hold and hold. Right now, your net worth is $2.2 billion dollars. You are very rich and it’s a couple of retailers that took you there.
Amazon started with books and now is the biggest retailer for just about everything. This explains the huge increase in market cap.
Yes. That’s exactly right. Amazon is a huge retailer. But they don’t sell houses, or cars. And those are huge markets. So what internet retailer is going to upend the car market, and the real estate market?
Amazon’s customers come back over and over again which gives Amazon hordes and hordes of loyal customers. Home purchases and car purchases are once in a blue moon purchases. This means that Caravana and Zillow’s customers will be essentially new with each transaction. They won’t really benefit from repeat purchasing.
That’s an excellent point. I would add that people who are shopping for a car or a house are not going to do any impulse buying. These are high ticket items. People are going to do some research before they buy. And it’s almost 100% certainty that people are going to do this research on-line.
I can’t say with absolute assurance that Zillow and Carvana will be that dominant internet retailer. But I do know there will be an internet retailer in these markets. That’s because internet retail has vast efficiencies vs. brick and mortar. It’s smarter, faster, easier, cheaper. You have way more options. It’s kind of a no-brainer to shop for your car, or your house, on the internet. So which company providing that service will dominate? I am with Highlander on this. “There can be only one.”
these companies won’t benefit from many of the things that adds value to Amazon: collecting lots of data on their customers
Sorry, this statement is completely wrong. Zillow has a huge amount of data on the housing market. Carvana is very much a tech operation. There’s a reason Amazon is not competing with them. (And it’s not because housing, or autos, is a small market opportunity!)
The car market is probably going to shrink in the next decade.
No
electric cars will expend the useful life of cars making their purchase less frequent
No
people are migrating from the suburbs to the cities making other modes of transportation (walking, biking, public transport) more utilized
No
ride sharing is increase which will require fewer cars
No
the young generations (millennials and GenZ) prefer not to own cars…
No!