Amazon: Soon the World's Most Valuable Company - WSJ Your Money Briefing

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[00:00]
A
This podcast is brought to you by relioQuest. Cybercriminals are constantly attacking. They want your data. They want your identity. They want your innovation. RelioQuest fortifies your business with agentic defense AI that detects, contains and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. ReliaQuest agentic defense for the enterprise. Learn more at reliaquest.com that's R E L I A Q U E-S-T.com.
[00:36]
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With your Money briefing. I'm J.R. whalen. We often discuss the importance of homeowners and professionals maintaining a high credit score, but college students can begin the process of moving up the credit score ladder while they're in school. We'll have details in a moment. First, these money and market stories you should know the White House's Council of Economic Advisors says that wage growth should be tabulated differently to account for aging workers, different inflation measures and changes to how workers are compensated. The Labor Department reports that inflation adjusted average hourly earnings grew just 0.1% in the second quarter from a year earlier. But the group of economists says that adjusted wages actually grew 1% in the second quarter from a year ago when also including lower taxes which boosted take home pay compensation is up 1.4% from a year earlier. The boost from tax cuts should ease within the next year as the law's effects are fully realized. The economists also point out that a greater share of worker compensation is now coming in forms other than wages, including health benefits, paid time off and bonuses. And in an effort to encourage companies to pay their workers a living wage, Senator Bernie Sanders on Wednesday introduced legislation that would tax corporations for the federal benefits their employees receive. The bill would establish a 100% tax on companies equal to the benefits their employees are receiving. Covered public assistance programs include Medicaid Section 8 housing, the Supplemental Nutrition Assistance Program, and the national school lunch and school breakfast programs for companies with more than 500 employees. We're joined by Hurt on the street columnist Dan Gallagher. Amazon reached $1 trillion of market cap on Tuesday, and although Apple was first to reach that level of rarefied air in August, Dan, you feel that Amazon is poised to overtake Apple as the world's most valuable company, and it has a lot to do with its diversity of products and services.
[02:39]
C
Particularly, it's due to the growth that those products and services are generating for Amazon, which has actually been outpacing Apple in growth rates for the last few years and will continue to do so. The reason I think Amazon is really poised to overtake Apple at some point in the near future is that if you look ahead, Amazon still has a lot of, a lot of potential in its main businesses of retail and, you know, corporate cloud. These services that it's, that are still growing really, really fast and they're, and they're already huge businesses. Apple's growth is really expected to be pretty slow over the next couple years. IPhone is still the largest business and unit sales are expected to be pretty much flat over the next two, three years. The revenue growth they're seeing is mostly from, you know, higher prices for the dev and some of the services they attach to those devices. Apple's done a good job on that, but it's not anywhere near what the pace Amazon's expanding at. Investors are really keen on the growth Amazon's delivering, plus the improved profits they're bringing in.
[03:45]
B
Amazon has seen a large chunk of their meteoric rise in value since just the start of this year.
[03:50]
C
Yeah, I think it was about 77% since the start of the year against Apple. I think Apple's 14 or around the mid teens there. They've closed the gap in a tremendous way. Just a few years ago, Amazon was literally half the size of Apple, both in market value and in annual revenue. Again, that's another thing that's going to change. We think in the next year. Wall Street's estimates are that Amazon's actually going to overtake Apple and in annual sales. This is a company that's getting big a lot quicker than Apple is and investors have really been rewarding that. I think the trend line is pretty clear.
[04:29]
B
Amazon's revenue growth since 2007 outpaced Apple and Google. But you write in your column that Amazon was no sure thing during its ascent. What did you mean by that?
[04:39]
C
Well, if you think about it, Amazon started as essentially an online bookseller. As it gained efficiency in that market, it added other things to the things that sold online. But even if you went back just 10 years ago, Amazon was still primarily an online retailer. It was just, it kind of dipping. It hadn't really yet dipped its toes into like even devices like the first Kindle E Reader and this, you know, it had launched this thing that called, they called Amazon Web services at the time. That's aws. That too was not, you know, they didn't break out results on that and it wasn't thought that that was going to be such a huge business for them. So what, what's happened over the last even just five years is that investors have gotten more visibility on those businesses. And it's very clear that Amazon is much more than a company that you just go to their site and click on when you want to buy something. It's getting into a lot of areas of people's lives.
[05:35]
B
And you feel that while Amazon's trillion dollar market cap is a benchmark that's worthy of headlines, its investors haven't been all that concerned about valuation.
[05:45]
C
Yeah, I mean, valuation relative to Apple, Amazon's still at a trillion dollars. Amazon's about 100 times forward earnings, which is a really rich value and a much higher valuation than the other really big large cap mega cap tech companies like Apple and even Google and Facebook and Microsoft. It's a riskier stock from that perspective. But if you go back, Amazon's actually average multiple over the last five, even 10 years has pretty much been in that line and sometimes even a lot higher valuation has not really been historically a worry for Amazon's investors. I don't think it's likely at all. Some people are going to go, oh wow, this is a rich stock. I'm not going to hold it. I think as they're continuing to generate the growth that they're doing, investors are going to be pretty comfortable with what they're paying for it.
[06:39]
B
All right, that is Wall Street Journal heard on the street, columnist Dan Gallagher joining us from our San Francisco bureau. Dan, thanks for being with us.
[06:45]
C
My pleasure.
[06:46]
B
And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.
[06:50]
A
This podcast is brought to you by reliaQuest. Cybercriminals are constantly attacking. They want your data, they want your identity, they want your innovation. ReliaQuest fortifies your business with agentic defense AI that detects, contains and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. ReliaQuest agentic defense for the enterprise. Learn more at reliaquest.com that's R E L I A Q U E-S-T dot com.

Summary3 min read

Episode Summary: "Amazon: Soon the World's Most Valuable Company"

Podcast: WSJ Your Money Briefing
Air Date: September 6, 2018
Host: J.R. Whalen
Guest: Dan Gallagher, Heard on the Street columnist, Wall Street Journal

Overview

This episode centers around Amazon reaching a $1 trillion market cap and examines whether the company is poised to surpass Apple as the world's most valuable company. Host J.R. Whalen interviews WSJ tech columnist Dan Gallagher about the factors driving Amazon’s rapid growth, the differences between Amazon and Apple’s business models, and what investors can glean from Amazon's valuation history.

Key Discussion Points & Insights

1. Amazon’s Market Cap Milestone and Growth Potential

Benchmark Achievement: Amazon hit a $1 trillion market cap on September 4, 2018, following Apple’s lead a month prior.
Driving Factors: Strong, diversified growth from both retail and cloud services, particularly Amazon Web Services (AWS), lies at the core of Amazon’s ascent.
Quote:

"Amazon still has a lot of potential in its main businesses of retail and...corporate cloud. These services are...growing really, really fast and they're already huge businesses."
— Dan Gallagher, 02:43

2. Comparing Amazon and Apple

Growth Rates: Amazon’s revenue and market value have been growing noticeably faster than Apple’s.
Apple’s Outlook: Apple’s primary growth comes from raising prices on devices and new services, but actual iPhone unit sales are expected to remain flat.
Future Projections:

"Wall Street's estimates are that Amazon's actually going to overtake Apple in annual sales. This is a company that's getting big a lot quicker than Apple is."
— Dan Gallagher, 03:58
Stock Performance (2018):
- Amazon up ~77% since start of year
- Apple up ~mid-teens percentage
- Amazon “closed the gap in a tremendous way.”

3. Amazon’s Evolution: From Bookstore to Diversified Tech Giant

Historical Perspective:
- Amazon started as an online bookstore.
- Only in the past decade has it evolved into a broader retailer and technology leader (e.g., Kindle, AWS).
- AWS, not initially seen as transformative, has become a crucial business pillar.
Visibility & Investor Perception:

"It's very clear that Amazon is much more than a company that you just go to their site and click on when you want to buy something. It's getting into a lot of areas of people's lives."
— Dan Gallagher, 05:15

4. Valuation: Does It Matter to Amazon Investors?

High Price-Earnings Ratio: Amazon trades at roughly 100 times forward earnings—a much richer valuation than Apple, Google, or Facebook.
Historical Consistency:
- Despite high valuations, investors have historically cared more about Amazon’s growth potential than its price.
"Valuation relative to Apple, Amazon's still at a trillion dollars...It's a riskier stock from that perspective. But...valuation has not really been historically a worry for Amazon's investors."
— Dan Gallagher, 05:44

Notable Quotes & Memorable Moments

Dan Gallagher on Amazon’s growth prospects:

"If you look ahead...Amazon still has a lot of potential in its main businesses of retail and...corporate cloud."
(02:43)
On catching up to Apple:

"Just a few years ago, Amazon was literally half the size of Apple...That's another thing that's going to change."
(03:57)
Amazon’s Risk Profile:

"It's a riskier stock from that perspective. But if you go back, Amazon's actually average multiple over the last five, even ten years has pretty much been in that line and sometimes even a lot higher."
(05:46)

Important Timestamps

02:39 — Gallagher discusses Amazon’s product/service diversity and rapid growth.
03:44 — Comparison of Amazon’s market performance against Apple (77% vs. ~14% YTD growth).
04:38 — Amazon’s transformation from an online bookstore to a technology and retail juggernaut.
05:44 — Discussion of Amazon’s high valuation and why it hasn’t deterred investors.

Final Thoughts

Dan Gallagher emphasizes that Amazon’s continued rapid expansion, especially in cloud computing and diversified retail, supports the notion that it will soon capture the title of the world’s most valuable company. Despite repeated concerns about its lofty valuation, investors have been and likely will remain comfortable with premium pricing as long as growth remains robust.

For listeners wanting a quick yet comprehensive understanding of Amazon’s historic market performance and potential, this episode provides an expert, nuanced breakdown of what makes the company unique in today’s tech economy.

Loading summary

Transcript13 lines

[00:00]
A
This podcast is brought to you by relioQuest. Cybercriminals are constantly attacking. They want your data. They want your identity. They want your innovation. RelioQuest fortifies your business with agentic defense AI that detects, contains and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. ReliaQuest agentic defense for the enterprise. Learn more at reliaquest.com that's R E L I A Q U E-S-T.com.
[00:36]
B
With your Money briefing. I'm J.R. whalen. We often discuss the importance of homeowners and professionals maintaining a high credit score, but college students can begin the process of moving up the credit score ladder while they're in school. We'll have details in a moment. First, these money and market stories you should know the White House's Council of Economic Advisors says that wage growth should be tabulated differently to account for aging workers, different inflation measures and changes to how workers are compensated. The Labor Department reports that inflation adjusted average hourly earnings grew just 0.1% in the second quarter from a year earlier. But the group of economists says that adjusted wages actually grew 1% in the second quarter from a year ago when also including lower taxes which boosted take home pay compensation is up 1.4% from a year earlier. The boost from tax cuts should ease within the next year as the law's effects are fully realized. The economists also point out that a greater share of worker compensation is now coming in forms other than wages, including health benefits, paid time off and bonuses. And in an effort to encourage companies to pay their workers a living wage, Senator Bernie Sanders on Wednesday introduced legislation that would tax corporations for the federal benefits their employees receive. The bill would establish a 100% tax on companies equal to the benefits their employees are receiving. Covered public assistance programs include Medicaid Section 8 housing, the Supplemental Nutrition Assistance Program, and the national school lunch and school breakfast programs for companies with more than 500 employees. We're joined by Hurt on the street columnist Dan Gallagher. Amazon reached $1 trillion of market cap on Tuesday, and although Apple was first to reach that level of rarefied air in August, Dan, you feel that Amazon is poised to overtake Apple as the world's most valuable company, and it has a lot to do with its diversity of products and services.
[02:39]
C
Particularly, it's due to the growth that those products and services are generating for Amazon, which has actually been outpacing Apple in growth rates for the last few years and will continue to do so. The reason I think Amazon is really poised to overtake Apple at some point in the near future is that if you look ahead, Amazon still has a lot of, a lot of potential in its main businesses of retail and, you know, corporate cloud. These services that it's, that are still growing really, really fast and they're, and they're already huge businesses. Apple's growth is really expected to be pretty slow over the next couple years. IPhone is still the largest business and unit sales are expected to be pretty much flat over the next two, three years. The revenue growth they're seeing is mostly from, you know, higher prices for the dev and some of the services they attach to those devices. Apple's done a good job on that, but it's not anywhere near what the pace Amazon's expanding at. Investors are really keen on the growth Amazon's delivering, plus the improved profits they're bringing in.
[03:45]
B
Amazon has seen a large chunk of their meteoric rise in value since just the start of this year.
[03:50]
C
Yeah, I think it was about 77% since the start of the year against Apple. I think Apple's 14 or around the mid teens there. They've closed the gap in a tremendous way. Just a few years ago, Amazon was literally half the size of Apple, both in market value and in annual revenue. Again, that's another thing that's going to change. We think in the next year. Wall Street's estimates are that Amazon's actually going to overtake Apple and in annual sales. This is a company that's getting big a lot quicker than Apple is and investors have really been rewarding that. I think the trend line is pretty clear.
[04:29]
B
Amazon's revenue growth since 2007 outpaced Apple and Google. But you write in your column that Amazon was no sure thing during its ascent. What did you mean by that?
[04:39]
C
Well, if you think about it, Amazon started as essentially an online bookseller. As it gained efficiency in that market, it added other things to the things that sold online. But even if you went back just 10 years ago, Amazon was still primarily an online retailer. It was just, it kind of dipping. It hadn't really yet dipped its toes into like even devices like the first Kindle E Reader and this, you know, it had launched this thing that called, they called Amazon Web services at the time. That's aws. That too was not, you know, they didn't break out results on that and it wasn't thought that that was going to be such a huge business for them. So what, what's happened over the last even just five years is that investors have gotten more visibility on those businesses. And it's very clear that Amazon is much more than a company that you just go to their site and click on when you want to buy something. It's getting into a lot of areas of people's lives.
[05:35]
B
And you feel that while Amazon's trillion dollar market cap is a benchmark that's worthy of headlines, its investors haven't been all that concerned about valuation.
[05:45]
C
Yeah, I mean, valuation relative to Apple, Amazon's still at a trillion dollars. Amazon's about 100 times forward earnings, which is a really rich value and a much higher valuation than the other really big large cap mega cap tech companies like Apple and even Google and Facebook and Microsoft. It's a riskier stock from that perspective. But if you go back, Amazon's actually average multiple over the last five, even 10 years has pretty much been in that line and sometimes even a lot higher valuation has not really been historically a worry for Amazon's investors. I don't think it's likely at all. Some people are going to go, oh wow, this is a rich stock. I'm not going to hold it. I think as they're continuing to generate the growth that they're doing, investors are going to be pretty comfortable with what they're paying for it.
[06:39]
B
All right, that is Wall Street Journal heard on the street, columnist Dan Gallagher joining us from our San Francisco bureau. Dan, thanks for being with us.
[06:45]
C
My pleasure.
[06:46]
B
And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.
[06:50]
A
This podcast is brought to you by reliaQuest. Cybercriminals are constantly attacking. They want your data, they want your identity, they want your innovation. ReliaQuest fortifies your business with agentic defense AI that detects, contains and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. ReliaQuest agentic defense for the enterprise. Learn more at reliaquest.com that's R E L I A Q U E-S-T dot com.