Amazon Hits $1 Trillion Market Valuation After Apple

by Bamidele Ogunberu Posted on September 4th, 2018

New York CIty, USA : Amazon.com Inc. AMZN today reached $1 trillion in market value, making it the second U.S. company after Apple Inc. AAPL to join the high-flying club.

Shares of Amazon climbed 1.9% in midday trading Tuesday, topping the $2,050.27 needed to push the company’s value above $1 trillion. The stock has surged 75% in 2018 and added more than $435 billion to the company’s market capitalization—roughly the size of Walmart Inc., Costco Wholesale Corp. COST +0.31% and Target Corp. TGT +0.87% combined.

Investors have rewarded the Seattle-based company as it demonstrated better financial discipline in recent quarters, reporting record profits because of lucrative businesses such as cloud computing despite aggressively spending on industries from health care to grocery delivery.

Amazon’s market-value growth has accelerated this year as investors reward its heavy spending and large acquisitions.

“They’ve proven they can make it work,” said Michael Lippert, who manages the Baron Capital BCAP -98.00% Opportunity Fund that counts Amazon as its largest holding. “They’re spending a lot on all these things to build and enforce their competitive advantages.”

Amazon and Apple, which hit the trillion-dollar milestone on Aug. 2, symbolize the growing influence of tech companies on markets and the economy. The industry is amassing wealth and power, creating a new order in business where the most valuable resource is no longer oil, but data. Not far behind in market value are Google owner Alphabet Inc. and Microsoft Corp. , both approaching $900 billion, while Facebook Inc. —which crossed $500 billion in July 2017, a day after Amazon—has stalled at those levels amid a data-privacy scandal and growth concerns.

The companies’ increasing clout have prompted lawmakers to scrutinize the tech sector more closely. Amazon, which captures nearly half of all U.S. dollars spent online, is simultaneously drawing the ire of President Trump over its effect on traditional retail and its use of the U.S. Postal Service. Sen. Bernie Sanders has also criticized the company for the way it pays and treats its warehouse workers, something Amazon has said is an inaccurate portrayal.

Amazon has needed fewer days to reach $100 billion market-cap milestones in recent years, catching up to Apple in the process.

Investors also worry about the tech companies’ outsize impact on the stock market. Amazon, Apple and Microsoft have accounted for more than 35% of the S&P 500’s total return this year, according to S&P Dow Jones Indices data through Aug. 28.

One of the biggest beneficiaries of Amazon’s growth is its 54-year-old leader, Jeff Bezos, who has surpassed Bill Gates to become the richest man in the world, according to multiple indices that track the world’s wealthiest people. Mr. Bezos owned roughly 16% of Amazon, as of an August regulatory filing, and is worth about $166 billion, according to the Bloomberg Billionaires Index.

Amazon has expanded rapidly since its humble founding as an online bookstore in Mr. Bezos’s garage in 1994. The internet then was just becoming a viable platform, and the most valuable companies at the time included industrial conglomerate General Electric Co. , oil giant Exxon Inc. and telecommunications power AT&T Inc.

Amazon was valued at less than $500 million when it went public in 1997. A $1,000 investment in the IPO would be worth roughly $1.4 million today, adjusted for stock splits.

Tom Alberg, founding managing director for Madrona Venture Group, invested in Mr. Bezos’s initial $1 million round of funding in 1995 and has served on the board since the beginning. At the time, “I don’t think that any of us saw that [the internet] or Amazon would become as significant as they’ve become,” Mr. Alberg said. He preferred to buy his books in stores, and many believed consumers would balk at paying with a credit card online.

Mr. Bezos and Amazon have been successful by staying intensely focused on customers, working to retain top talent, innovating and taking big risks on projects—even if they fail, Mr. Alberg said. “People have asked me, ‘What’s Amazon’s secret to success?’” he said. “There are no secrets.”

Mr. Bezos has built his business by keeping prices low and expanding quickly. Opening the company’s site to millions of small businesses, retailers and manufacturers accelerated growth, helping capturing sales from other retail chains. Last year, the company’s online store sales topped $108 billion, and the services it sold other merchants added to that total.

Amazon along the way has created popular electronic devices, produced award-winning films and shows, and built a cash cow by renting computer power on its servers to other companies. Amazon Web Services made more than $17 billion in revenue last year and has become the company’s biggest profit driver.

In recent months, Amazon has acquired grocery chain Whole Foods Market—giving it roughly 470 brick-and-mortar locations—and online pharmacy PillPack. It has enabled logistics drivers to deliver inside consumers’ homes and cars, and is working on a delivery service expected to one day compete with FedEx Corp. and United Parcel Service Inc.

As the company expanded, Amazon’s influence on markets also grew. It has inspired exchange-traded funds that bet against brick-and-mortar retailers, and even so-called value investors that tend to avoid large tech and internet firms say they study the company to understand other sectors.

“The tentacles of Amazon are so long and reach so many industries that you have to have an understanding of that business and where they’re going,” said Matt Lockridge, portfolio manager of the Westwood Large Cap Value Fund.

It took Amazon just 165 trading days to grow its market value from $600 billion in January to $1 trillion, pushing it past the more established Microsoft and Alphabet. By comparison, Apple needed 183 sessions to hit $1 trillion after piercing $900 billion in November.

Amazon is more expensive than many of its peers. It trades at about 90 times projected earnings for the next 12 months, compared with valuations of roughly 25 for Alphabet and Microsoft and 17 for Apple and the broader S&P 500. Part of the discrepancy is because Amazon’s record second-quarter earnings of $2.53 billion are still billions below the profits generated by Apple, Alphabet and Microsoft.

The higher market multiple is a reminder of how much investors have embraced Mr. Bezos’ strategy of heavy spending in the past 20 years. Some analysts expect Amazon to soon overtake Apple as the largest U.S. company, which would mark the first such change since 2016, when Alphabet briefly passed the iPhone maker.

Mr. Bezos’ initial shareholder letter in 1997—which he resends every year—touted the company’s indifference to “short-term Wall Street reactions.” At all-hands meetings with employees, Mr. Bezos has quoted legendary investor Benjamin Graham: “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”

EARLIER : Apple Reaches $1 Trillion Market Valuation

New York CIty, USA : Apple Inc. (AAPL) became the first private-sector company in history to reach $1 trillion market valuation, after its share price reached an all-time high above $207.04 on Thursday.

The Cupertino, California-based Tech giant reached that magic number at about 11:48 am ET on Thursday when the stock passed $207.04 per share. Apple is currently trading at an all-time high of $208.38, representing over 20 percent increase this year. The company’s shares have gained about 10 percent since Tuesday after it reported results for the third quarter.

Apple, the world’s most valuable public company, was also the first U.S. company to reach the $900 billion threshold after breaching the mark in November last year. It also boasts of becoming the first to hit $800 billion when reached the milestone in May.

Amazon, Google parent Alphabet and Microsoft have all rallied to near record highs this year, with Amazon’s valuation now near $900 billion while Google and Microsoft are worth over $800 billion.

Apple’s stock got a boost after the company on Tuesday reported a the third quarter profit and revenues that trumped Wall Street estimates. The company’s results were boosted by its pricier iPhone X and its services. The company also issued a strong outlook for the fourth quarter.

Investors had previously been looking for a share price of $203.45 to push Apple across the finish line in the race to $1 trillion, but the company’s hefty stock buybacks moved the threshold higher Wednesday.

The company’s growing software and services revenue was credited with driving the valuation. The catch-all category ( which includes the App Store, AppleCare, Apple Pay, iTunes and cloud services ) posted record revenue of $9.55 billion for the June quarter.

Although, iPhone units sales for the quarter only increased a mediocre 1 percent, iPhone revenues increased a sharp 20 percent largely helped by iPhone X, which carries a significant price premium over the iPhone 8 and previous models.

Apple’s growth in last two decades has been nothing short of a miracle, after it turned around from the brink of bankruptcy. Steve Jobs, who was ousted from Apple in the mid-1980s, returned a decade later and helped the company from near bankruptcy. Jobs then drove the company to become a dominant tech company by launching new products that revolutionized the industry. Under Jobs, Apple transformed from a PC maker to smart devices and services company.

After Jobs death, CEO Tim Cook has been steering the company in right direction as proved by current results and market valuation. However, the main criticism against Cook has been that he has not been able to develop a new innovative product to replicate success that Jobs brought to the company through iPhone.

AAPL is currently trading at $208.25, up $6.75 or 3.35%, on the Nasdaq.

As of Thursday’s close, Apple had gained 22 percent in 2018 and more than 30 percent in the last 12 months.

The $1 trillion milestone is largely symbolic, though impressive. Apple’s market capitalization — a common financial measure of worth that multiplies the number of shares by the share price — makes the company worth more than the economies of, for example, Saudi Arabia, Switzerland and Taiwan.

The tech company, launched from a garage in 1976, has been on a steady climb through the years, revolutionizing personal computers and phones with its Macs and iPhones. In recent years, Apple has been working to spread its cult-like following to newer devices like smartwatches, cordless headphones and smart home speakers.

PetroChina once had a $1 trillion valuation, but only briefly, and most of its shares were owned by the Chinese government.

Author

Bamidele Ogunberu

Bamidele Ogunberu

Staff Writer
Phone
Email

Leave a Reply