Source: PaxForex Premium Analytics Portal, Fundamental Insight
In April 2020, Amazon's market value exceeded Apple's for a time. Back then, these two tech behemoths were worth around $1.2 trillion. But today Amazon is still worth $1.2 trillion, while Apple's market value has roughly doubled to $2.4 trillion. Let's break down why Apple is so far ahead of Amazon - and whether Amazon can catch up by 2025.
In early 2020, Amazon seemed like a more appealing investment than Apple. Amazon's e-commerce and cloud business had every chance to grow throughout the pandemic as stores closed, consumers stayed home, and people gained access to cloud services and apps.
Two years ago, Amazon's revenues rose 38% to $386.1 billion, net income rose 84% to $21.3 billion (even despite billions of dollars in COVID-related expenses), and earnings per share (EPS) rose 82%. The bullish explanation was simple: Amazon's e-commerce business will continue to grow as it attracts more customers through Prime, and the growth of Amazon Web Services' (AWS) high-margin cloud platform will subsidize the growth of low-margin retailers.
At the time, Apple was still selling 4G-enabled iPhones while new 5G-enabled Android devices came on the market. It was also losing ground in China, behind popular domestic smartphone brands such as Xiaomi, Oppo, and Vivo. The first family of 5G devices, the iPhone 12, will not arrive until late 2020. The trade war also threatened to disrupt the company's manufacturing capabilities in China.
As a result, in fiscal 2020 (which ended in September of the same calendar year), Apple's revenue rose just 6% to $274.5 billion. Net income rose 4% to $57.4 billion, and earnings per share - boosted by share repurchases - rose 10%. These disappointing numbers suggested that Apple's high-growth days were over, so many investors favored Amazon over Apple.
But as the momentum from the pandemic faded, Amazon's growth slowed amid tough comparisons to last year. Still, in 2021, the company's revenue rose 22% to $469.8 billion, net income rose 57% to $33.4 billion, and earnings per share rose 55%.
Unfortunately, several macro issues this year will exacerbate Amazon's post-pandemic downturn. Inflation will reduce the purchasing power of retail consumers while increasing the company's spending in the marketplace, and macroeconomic factors will gradually reduce the corporate market's appetite for its cloud services. The resignation of founder and CEO Jeff Bezos last July also made it clear that Amazon's growth and valuations had reached a near-term peak.
This year, analysts expect Amazon's revenues to grow only 11% and its net income to decline 98% because of increased investment. This sharp decline in growth has spooked investors, and the company's stock is down 33% this year.
While Amazon's growth cooled, Apple's growth accelerated as the company launched the iPhone 12 and expanded its subscription-based services. In fiscal 2021, revenue jumped 33% to $365.8 billion, net income rose 65% to $94.7 billion, and earnings per share rose 71%. As a result, Apple was once again an attractive growth stock as the pandemic-era games burned out.
Analysts expect Apple's revenue and net income to grow 7% and 5%, respectively, in fiscal 2021 as the company awaits the release of the iPhone 12. That steady growth rate -- and the resilience to inflation of its wealthy customers -- probably made it a more attractive stock than Amazon. That's why its stock is down just 15% this year.
Amazon's growth should stabilize once inflation and supply chain disruptions subside, but investors shouldn't expect the company to grow as fast as it did during the pandemic. Between 2021 and 2024, analysts expect the company's revenues to grow at a compound annual growth rate (CAGR) of 14% and earnings per share to increase at a compound annual growth rate of 6%.
Meanwhile, Apple is widely expected to release new AR devices in the next few years to diversify its top line from the iPhone, iPad, and Mac. The company is also expected to release an electric car in the future. The company already finished last quarter with more than 860 million paid subscriptions in its services ecosystem, and this huge range should drive the launch of its future products and services. That scenario is still hazy, but analysts expect Apple's revenue to grow 6% year over year from fiscal 2021 to 2024 and earnings per share to grow 8% year over year.
Amazon may show higher revenue growth than Apple, but its earnings growth should remain weaker because it operates on much lower margins and spends less cash on buybacks. At about $120 a share, Amazon actually trades at more than 30 times its projected earnings for 2024. At about $150, Apple trades at 22 times its 2024 earnings forecast.
Therefore, Amazon's higher ratio may decline as investors prepare for several more years of single-digit earnings growth. Apple's ratio could stay the same - or even rise - as it launches new products and services.
There's no telling exactly where Apple and Amazon will end up by 2025. But based on these facts, it seems unlikely that Amazon's market value will eclipse Apple's in the next three years.
As long as price is below 125.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 112.86
- Take Profit 1: 105.00
- Take Profit 2: 95.00
Alternative scenario:
If the level of 125.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 125.00
- Take Profit 1: 136.00
- Take Profit 2: 145.00
