Is Amazon’s $1 Trillion Different From Apple’s?
On September 4th, Amazon (AMZN) transiently became the second publicly traded American company to ever be valued at $1 trillion.
The first company, Apple (AAPL), reached that milestone on August 2nd.
This shouldn't be a shock to anyone. Amazon, Microsoft, and a slew of other companies have all been building their businesses to join Apple in the $1 trillion club.
Now, what's interesting is that Amazon operates differently than Apple does. But this difference didn't stop Amazon from reaching this historic milestone and joining Apple in the $1 trillion club.
There are two factors that I believe played a big role in the company's $1 trillion valuation...
Service Is King
First, Amazon dominates in the retail consumer market. You can buy almost anything on Amazon. What makes the company stand out is its delivery service. Not only will it deliver to your door, but you'll also get it quickly — sometimes on the same day that you placed the order. Now that's impeccable service...
See something on the best-seller list that you want to read? Have it shipped to you or read it in digital format on your Amazon Kindle. Aside from Barnes & Noble, how often do you actually see a bookstore? Amazon ran out the mom-and-pop shops.
Need groceries? You don't have to get off the couch or out of bed. Whole Foods will deliver them to you. Amazon bought them last year to add to its consumer service.
I guarantee that you can find everything you'd need on Amazon.
Furthermore, Amazon has Prime Video streaming service, which competes with the likes of Netflix and Hulu. This is significant.
Remember, Apple has spread its services and hasn't only relied on product sales. With Apple Music and its other subscription-based services, the company generates revenue from its customers after the initial device purchase. And once you're an Apple customer, you rarely jump ship.
That's the territory Amazon is getting into with its music- and video-streaming services...
Just Keep on Truckin'
Second, Amazon's growth is incredible. In 1997, Amazon went public at $1.50 per share. Twenty years later, in 2017, it traded at over $1,000 a share, before it doubled in 2018.
But Apple started in 1980 at $22 a share and is now at over $200.
It took Apple 38 years to be valued at $1 trillion, while Amazon took 21.
In 2017, Amazon's revenue grew by 31%, compared to Apple's 6%.
There's no stopping Amazon. It still has plenty of room to grow...
Now, Amazon doesn't pay dividends. It's chosen to reinvest in the growth of its services instead. From the expansion of its Amazon Web Services (AWS) to the development of pilotless delivery drones, Amazon is actively thinking of ways to grow its services.
Amazon is even helping a struggling government agency: the U.S. Postal Service (USPS).
Overall shipping is down because digital communication has taken over how people interact. And honestly, who likes to use snail mail when you have other options like UPS and FedEx?
But with Amazon's growth and increased shipping demands, the USPS is making a comeback. It ships almost half of Amazon's orders. And that's over 2 billion more packages a year, compared to what the agency shipped 10 years ago.
There's no doubt that Amazon will continue to grow.
But will it outsell Apple? I doubt it. But only time will tell...
John Butler Jr.
Contributing Editor, Park Avenue Digest