In the world of economic shenanigans, we now have "tech" companies that are about to exceed 1 Trillion dollar in cap value. But does that even make sense? Is the price justified?
I choose Amazon, because unlike FB or Google you actually get a box of something left at your door when you pay Amazon. According to yahoo statistics (https://finance.yahoo.com/quote/AMZN/key-statistics?p=AMZN), Amazon has:
PE ratio is over 213, a typical value for 10+ year old company is 15-16.
Rev is 193 right now.
For the PE to be <20, still higher than typical, the Earnings have to increase by an order of magnitude.
Assume that the margin is "linear" with revenue. Then revenue has to be 1930 billion. That is almost 2 trillion dollar in revenue.
Amazon has separate retail websites for the United States, the United Kingdom and Ireland, France, Canada, Germany, Italy, Spain, Netherlands, Australia, Brazil, Japan, China, India, and Mexico (https://en.wikipedia.org/wiki/Amazon_(company)). So assuming they have business in these countries, their customer base will be about 4 billion people. So a bit more than half the population on earth. So I am going to assume that eventually Amazon will reach every single person on the planet, that is 7 billion.
Let us divide the revenue 1930/7 = 275. That means for Amazon to get to PE ratio they must have every single person on the planet pay them $275 a year. Do you think that is ever going to happen? How many people in India or China have $275 to give to Amazon every year? But today Amazon has only half the planet, so we are looking at $550 a person, not a house or a family?
If the average house hold in the US is 2.58, that means every house in the nation has to spend $1375 or $115 a month? For a young couple with couple of kids, that is $2200 a year of Amazon money. That is in the US, supposedly the strongest economy in the world ever., quote Mr. Trump here. I doubt that is possible particularly when $10-$15 dollar/barrel increase in oil prices is consider a threat to the economy and national security.
I think Amazon knows that; that is why they are trying to extend to other fields, grocery, pharmacy and delivery. It does not really matter what business you acquire nowadays, your margins are determined by your cost. Automation and technology might help reduce the cost but these reductions impact will find their way back to the system putting pressure on prices and forcing the need for further reductions.
Yet the stock prices keep on going up and no one, particularly in the fake media, mentions a word about this discrepancy. Maybe it is time to short Amazon!