So I understand that it may not be easy to look at a company that’s worth $1.9 trillion and say “Oh, that’s a bargain.”
$1.9 trillion is a big number. The entire output of the US economy – all the people working all the jobs making all the stuff and performing all the tasks – amounts to $29 trillion dollars. That’s America’s Gross Domestic Product (GDP) right now – $29 trillion dollars.
$1.9 trillion is 6.5% of $29 trillion. Not inconsequential. In fact, I’d say that anything that’s valued at 6.5% of America’s entire annual output of goods and services is pretty darn consequential. Downright important, even.
How significant is a company worth $1.9 trillion in terms of the U.S. population?
There are currently 161 million employed Americans. That means each working American contributes $180,000 to that $29 trillion annual GDP.
It also means that each working American accounts for $11,700 of our $1.9 trillion company.
We can break it down even further and credit the entire U.S. population with contributing to this $1.9 trillion valuation.
The US population is 333 million people. Each person’s share of that $1.9 trillion valuation is $5,850.
$1.9 trillion – that’s the current market capitalization of Amazon.com.
Market capitalization is simply the total number of shares times the share price. If a company had one share of stock outstanding that was worth one dollar, it would have a market cap of $1. Amazon has 10.5 billion shares outstanding, with shares trading for $185 each, so, there ya go – $1.9 trillion.
I’m here to tell you that a $1.9 trillion valuation – 6.5% of U.S GDP – is not enough. Amazon should be worth more than that. Maybe twice as much…and at some point in the next 2 years, it will be.
Amazons American Dream
If you think about Amazon’s reach, how many people shop Amazon, watch Prime videos, give gift cards at Christmas – Amazon’s $1.9 trillion valuation breaks down to $5,850 per American citizen.
That’s not ridiculous at all.
80% of Amazon’s customers are in the U.S. 230 million Americans have purchased something from Amazon. 180 million Americans – over half the U.S. population – has an Amazon Prime account.
There simply aren’t many companies more entwined in American life than Amazon.
When it comes to retail, Walmart is a decent comparison for Amazon. Walmart counts 64% of the U.S. population as customers.
Amazon counts $604 billion in annual revenue. Walmart does $665 billion in annual revenue.
What sets Amazon apart is that its profit margins are three times bigger than Walmart’s…
That’s because Amazon isn’t just a retailer. It also runs Amazon Web Services.
Account for Amazon Web Services and you can then allocate some of Amazon’ valuation to all the companies whose entire online presence (billing, customer service, logistics, accounting) is hosted by Amazon Web Services – companies like NetFlix, AirBNB, Disney, Comcast/Universal, McDonald’s, Pfizer, Twitter…
Amazon’s retail operation still accounts for the bulk of total revenue, around 65%. But AWS is the reason Amazon’s profit margins are so much better than Walmart’s.
So let’s just call it even and say that half of Amazon’s market capitalization comes from retail, the other half from AWS.
That means we can cut each American’s share of Amazon’s market value in half – from the $5,850 figure we arrived at earlier to $2925!
Perpetually Undervalued
I will admit: describing Amazon’s value as coming from $2925 from each US citizen and $2925 from each of its corporate customers is far from perfect.
Still, it puts Amazon’s market cap into some perspective.
I think Amazon is one of the safest investments you can make that is likely to make you at least 20% a year, every year…
Cheers,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
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