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What Explains amazon.com's Share Price?

By       Message Paul Craig Roberts       (Page 1 of 2 pages)     Permalink

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From flickr.com: Jeff Bezos {MID-146537}
Jeff Bezos
(Image by jurvetson)
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Here are today's top stories on Bloomberg...

"Jeff Bezos briefly overtook Bill Gates as the world's richest person. A surge in Amazon shares Thursday morning in advance of its earnings report gave Bezos a net worth of $92.3 billion, surpassing the Microsoft founder's $90.8 billion fortune. In afternoon trading, Bezos remains ranked second on the Bloomberg Billionaires Index. Gates has held the top spot since May 2013."

Amazon's stock closed yesterday at $1,046 per share. Amazon's profits do not support this extraordinary price. Apple, a very profitable company, has a share price of $150.56, an overprice itself.

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What or who is making Bezos so rich from an online sales company? Note, amazon.com is just sales. It is not some new manufacturing technology that produces valuable output at low cost. Amazon.com is what Walmart, Sears, and Macy's do, the difference being that amazon.com is online and Walmart, Sears, and Macy's are in physical locations where real merchandise can be experienced hands on and tried on for fit.

In other words, online purchases are convenient, but you don't know what you are getting. Does it fit? What is the quality? And so forth. How many times do you send it back before you get what you want?

There are two answers to the question about who is making Bezos rich.

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One is that Wall Street is betting that the collapse of US anti-trust law and regulatory authority -- it is still on the books but not enforced, just look at the Big Banks -- and the ability of Bezos to use his ownership of the Washington Post, the newspaper of the country's capital, to support those who support him, ensure that amazon.com will be an online monopoly. Once this is put in place, amazon's prices and profits will rise, and the extraordinary amazon.com P/E ratio will come into line with reality.

Another is that Bezos' cooperation with Washington's spy network over all Americans is paid for by the CIA's many front companies driving up the price of amazon.com's stock. As the price of amazon.com rises, so does Bezos' wealth.

I don't know that either of these answers is correct. What I notice is that Bill Gates who heads the largest digital technology company is on occasion second fiddle to Bezos who heads an online Sears or Macy's.

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?

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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.

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Dr. Roberts was Assistant Secretary of the US Treasury for Economic Policy in the Reagan Administration. He was associate editor and columnist with the Wall Street Journal, columnist for Business Week and the Scripps Howard News Service. He is a contributing editor to Gerald Celente's Trends Journal. He has had numerous university appointments. His books, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is available (more...)

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