Amazon Beats Apple At Its Own Game

Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The tech industry is the epitome of competition in the market place. It's often believed that competition drives prices down for the consumer, and again, the tech industry is a perfect example of that happening. There are some new developments that should prove to be worth watching in the near future.

I always talk about how Amazon (NASDAQ: AMZN) is slamming the door shut on retail stores, putting well known companies out of business, and yet they have metrics that are unfavorable for investors. I have talked about a different way to measure companies like Amazon that are growing quickly, by using cash from operations as opposed to the common Free Cash Flow (FCF) metric. In this article by Daniel Sparks, he explains in detail how he values Amazon higher than what it is currently trading. After all, Amazon's market cap is over $120 billion, and its FCF yield is a dismal .33% despite generating $61 billion in revenue last year.

Amazon couldn't possibly deliver blows to a company that has a 359% larger market cap like Apple (NASDAQ: AAPL), right? In all honesty, I don't know. Apple lists the new 21.5" iMac models for $1,299 and the 27" for $1,799. The company explains to customers there will be a 2-3 week wait for the 21.5" models as well as a 3-4 week wait on the 27" iMacs. Amazon claims to have the same products for the same prices. The difference lies in shipping -- Amazon's customers are eligible for Amazon Prime shipping. Naturally, Apple had to respond to the competition and has tried. The company is now selling refurbished models for $200-$230 cheaper, with a claim of 1-3 day shipping. 

Amazon currently shows a Forward P/E of 64.5 compared to Apple's Forward P/E of 8.3. While Amazon shows a $-.90 Earnings Per Share (EPS), Apple shows EPS of $44.10. Again, take Amazon's metrics lightly as they are generally very skewed because of their rapid growth.  

As if just those two companies didn't create enough competition, Google (NASDAQ: GOOG) looks to gain even more market share in many tech areas. Reports are flowing in that the company plans to open brick-and-mortar retail stores like its competitors, Apple and Microsoft (NASDAQ: MSFT)The only reports released have shown "miscellaneous Google products," but surely these stores would present an opportunity to sell more Chromebooks, Nexus tablets, and their new Google Glass products. Americans should see stores emerging in major metropolitan areas just before Christmas. 

Google is enormous without the help of retail stores. Its market cap is already approximately $261.4 billion, and the company already shows EPS of $32.47. Some arguments are presented that they should stick solely to online marketing to reduce overhead expenses and follow the success of Amazon. Others argue that they can't continue to compete with Microsoft or Apple if they don't move into retail stores soon. To calm some of these arguments, it should be noted that Google's Sameer Samat told All Things D, "We aren’t planning on being a retailer. We don’t view being a retailer right now as the right decision."

Comparatively, Microsoft has remained under the radar to these other companies. I have presented the case that Microsoft is missing out on some serious opportunities, but the company still needs to work through some issues. The company currently generates approximately $74 billion of revenue annually, and has increased EPS from $.92 to $2.00 in the past decade.  This is a 217% increase. Apple's and Google's EPS have increased 43,933% and 7,663% more than Microsoft's while Amazon's has decreased 113% in the same period of time. 

AMZN data by YCharts

The Foolish Bottom Line...

As with every tech company, the success they have lies in their own hands. It is up to them to be innovative, profitable, and competitive. I would encourage everyone to not only look at metrics of a company, but also how management and business model play into a company's success. Microsoft doesn't get as much news as any of these other companies, but they still have some new products coming, as well as the desire to be the best. Apple and Google are simply enormous with nothing holding them back from excelling more every year. Amazon continues to grow and has acquired the "game on" approach. 


tlwofford has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and Google. The Motley Fool owns shares of Amazon.com, Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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