[nakedlunch]

Isn’t that a bit of a silly question?

The share price should reflect future earnings. If you are a shareholder, you believe that amazon will continue to grow and that other people will continue to value its future earnings higher than the price you purchase at.

Amazon’s strategy is not (solely) to make a profit. It’s strategy is to invest in growth, sometimes in such a way that makes a loss or scant profit, to dominate markets in a way that gives them sustained competitive advantage.

If you bought Amazon and asked them to switch to simply profit making, then they could can a lot of the future growth stuff to get your trillions back. Comparing them to an apartment building which can only grow in line with a wider market (ignoring subdivision of apartments etc) is just a weird false comparison in my eyes.

[pessimizer]

What part of the comment you replied to implied that Amazon would never grow? The entire OP is about the growth that Amazon would have to do to fulfill certain scenarios (that would result in expected profit for investors.)

[nakedlunch]

What I’m trying to point out (maybe I did a bad job!) is that it doesn’t make sense to try to run the numbers of how long it would take to return an investment in purchasing Amazon in profit, considering if returning investment capital in profits was Amazon’s goal they would behave in a profit maximising way rather than a growth maximising way. I just don’t think it’s the right question to ask (how long would it take to pay off buying Amazon from Amazon’s current profit margins) because the answer wouldn’t tell you anything interesting about how to value Amazon.

[isoskeles]

> …company's profits year after year, after subtracting all amounts reinvested in the business…

This does not mean the business will chase profits instead of growth.

I believe he’s paraphrasing value investing as described by Warren Buffett. I’d guess other investors have said the same thing although Buffett is quite well-known.

[actually_a_dog]

> The share price should reflect future earnings.

In particular, the market cap of a company should theoretically be equal to the net present value of all future and current cash flows. Therefore, (again, theoretically), if AMZN is priced correctly, the answer should be that you will break even, eventually.

Seen in this light, the company's job is to ensure that its stock is not priced correctly -- that you should actually be able to make a profit by buying AMZN (even the entire company) today.

[axiosgunnar]

When is eventually? In infinity years?

[Retric]

Every time a company like Enron fails with positive stock value that theory is demonstrated to be objectively false.

As we know that theory is wrong we should discard it, which then opens the question back up. Anyway, expectations of future earnings are far from the only way stocks are valued. If you can predict a short squeeze for example you expect a jump in price independent of fundamentals.

[cs702]

Please don't attack a straw-man. As I wrote above, we're talking about profits "after subtracting all amounts reinvested in the business." So, taking into account all that future growth, will the company's future profits, after subtracting all amounts reinvested in the business, justify its price today?

[nakedlunch]

Sorry, I didn’t mean for it to come over as an attack - but I don’t think it’s a straw man.

What do you think doing that would say about Amazon’s value? Why does that matter in justifying its price today?

[Retric]

The current stock price is always a prediction of future earnings x the probability of those earnings. A lottery ticket might in theory be worth 50 cents but have a high probability of being worth nothing.

In essence guessing if a stock is likely worth it’s current price is asking if it’s a low variance bet (T-Bills), high variance bet, or miss priced.

[ta1234567890]

> The current stock price is always a prediction of future earnings

Maybe in theory, but in practice, at least currently, that’s not how the market is behaving.

The current stock price reflects the aggregated sentiment of past transactions regarding the probability of the actors being able to turn a profit now vs later. The person who is selling is either acting on the sentiment of cutting losses or realizing a gain, while the one buying is acting on the sentiment of the expectation of future gains.

Earnings might be one factor that informs sentiment, but it is not the only one or even the most important, especially for retail investors using Robinhood for example.

[Retric]

Are you taking a narrow view of earnings? As far as a stockholder is concerned a company being bought out qualifies as earnings even if they never turn a profit and are only bought for their IP.

[ta1234567890]

You are right. I understood earnings as company earnings, as that is usually the meaning in the context of stocks. Now I realize you were talking about the stockholder’s earnings.

[devoutsalsa]

> Isn’t that a bit of a silly question?

Given how bonkers all investment classes are right now, it’s a pretty sane question to me. Also, tagging a seemingly honest question as silly feels a bit harsh to me.