[snowwrestler]

I understand this point of view, but it doesn't seem likely to me that the expected future profits of Amazon can be realistically expected to be 283x the expected future profits of Apple. I just don't see any way to support such a big multiplier.

[tptacek]

Without getting into the specifics, we can think of the P/E both as a measure of how speculative the future earnings are (Amazon, which is consistently and deliberately barely profitable, reflects little of its upside in its earnings; Apple, on the other hand, is milking its cash cows for all they're worth); another way to think about it is, Amazon is plowing more of their earnings back into efforts to buy market share, where Apple is extracting them into cash reserves right now.

Remember, Apple's market cap is still much larger than that of Amazon. Even though Amazon has what over the long term might end up being a much more lucrative model, in that it is poised to more or less control retail and retail logistics everywhere.

They're both great companies, but the P/E of each company tells a different story about their business (neither story is bad).

[snowwrestler]

Sorry, I misspoke above. Rather than edit I'll just correct myself here.

What I should have said is: The expected future profits of Amazon would have to be 283x their own current profit (sorry, not Apple's profit), to arrive at a P/E similar to Apple's now. (In other words, to match Apple's strategy of extracting max profits to cash.)

That is a smaller number than I implied above, but it would still require Amazon at some point in the future to make a profit of $178 billion in 2012 dollars--more than 4x Apple's current profits.

To achieve that with, for example, the profit margin of Walmart (the current dominant retailer), they would need to do about $5 trillion in sales, again in 2012 dollars--about one third of U.S. GDP, or 1/14 of world GDP.

If we spot them Apple's current profit margin, sales would still need to be about $670 billion--about $180 billion over Walmart's current sales (at much higher product prices).

So while I totally understand the idea that Amazon is reinvesting for future growth, I just don't think future growth could ever be high enough to justify the stock price now.