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The new fifth-largest company on Earth is a growth juggernaut… and it’s just getting started.
Bloomberg reports Amazon’s (AMZN) market capitalization just hit $356.5 billion.
[Market capitalization—or “market cap”—is a company’s share price multiplied by all shares outstanding.]
That pushes Amazon above “superinvestor” Warren Buffett’s Berkshire Hathaway… almost one exact year after Amazon shot above retail giant Wal-Mart.
But the key statistic behind the story is the difference in the two titan companies’ revenue growth…
Amazon’s revenue (i.e., sales) growth rate clocks in at about 28%—and rising. That’s enormous growth for such a large company. It’s almost four times more than Berkshire’s flat 7.7%.
But the flipside of Amazon’s staggering growth rate is its minuscule profitability…
Everything has been about growth. Amazon’s only posted a consistent profit over the last four quarters. And these earnings are so low, Amazon’s price-to-earnings (P/E) ratio is a whopping 307.42…
[A P/E ratio of 10 (or less) is a popular indicator of good value in a company’s shares.]
Longtime Daily readers know PBRG is a huge proponent of Warren Buffett’s long-term approach to investing. Berkshire Hathaway has returned almost 20% per year—for over half a century. That’s an astonishing feat Amazon may never replicate. (We’ll know in 28 more years…)
Still, Amazon’s march to a Berkshire-topping market cap comes just 22 years after founder Jeff Bezos started the business in his garage in Bellevue, Washington. That’s an astounding achievement when you consider Berkshire is a holding company for many of the greatest businesses in human history.
I wanted deeper, expert insight on where Amazon goes from here for PBRG subscribers. So I reached out to PBRG friend Jeff Brown…
Jeff is a 25-year tech insider. He’s worked for some of the largest companies in the space… has taken startup companies public… and is renowned as a tech venture capitalist. He also edits Bonner & Partners’ Exponential Tech Investor newsletter.
Here’s what Jeff has to say about Amazon today…
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From Jeff Brown, editor, Exponential Tech Investor: Amazon is a widely misunderstood company. Everyone is waiting for it to become profitable. But for me, it’s not about profitability. The key metric I look at is cash flow.
Amazon’s generating free cash flow of more than $10 billion this year. Could it be profitable if it wanted? Absolutely. But it’s choosing to invest its free cash flow in new and innovative services instead.
Here’s a simple example…
Over the last two years, Amazon built a new division called Amazon Web Services. It’s now the largest web-services and web-hosting platform in the world—and an $8 billion-plus business. It’s responsible for 54% of Amazon’s gross profits.
And it didn’t stop there…
Amazon’s developed what I’d argue is the most advanced artificial intelligence (AI) product on the consumer market today: the Amazon Echo. The speaker-like device uses an AI technology called “Alexa.” Amazon’s expected to ship about 3 million units this year—and a whopping 10 million in 2017.
The examples above show Amazon knows how to create new businesses and technologies for consumer use. And it’s just getting started…
Only about 10% of retail commerce in the United States is online. Amazon has about 40% of that total market. So there’s tremendous upside in just the e-commerce business alone.
One of the best things about Amazon is its Prime service. More than 50 million people around the world are Prime members.
Same-day delivery is available in around 27 cities. Two-hour delivery is available in 25. Plus, Amazon’s currently working on a Prime drone service capable of delivering products within 30 minutes.
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And unbeknownst to most…
Amazon’s becoming a logistics company behind the scenes. In 2015, it spent more than $10 billion on shipping alone. So it’s decided to double its air force—made up of huge 767 freight planes—to about 40 aircraft total.
With a growing fleet, Amazon could become the next FedEx or UPS. If you asked me for a great pairs trade, I’d say go long Amazon and go short FedEx and UPS. Amazon’s going to have an extraordinary logistics network as it builds out its service.
Bottom line: Amazon is a buy today.
Reeves’ Note: Jeff believes the disruptive technologies at play today—like the ones Amazon is harnessing—mean some of the world’s largest “safe” blue-chip companies are in danger… and no one sees it coming.
Jeff’s discussing this threat in a one-time training series underway right now… and I’ve secured 100% free access for all PBRG subscribers.