By conventional measures of stock prices, Amazon.com looks very expensive.
It's actually surprisingly cheap.
Twenty-one years after it went public, a share of Amazon stock costs 70 times more than the company's estimated per-share future earnings. That means investors are willing to pay much more for each dollar of Amazon's earnings than for shares of Microsoft, Apple, Facebook, Alphabet or Alibaba. The everything store's price-to-earnings ratio is four times higher than that of the S&P 500 index.
Yet even at this valuation, all but one of 52 analysts surveyed by Bloomberg recommend owning the stock, and 48 of them say that investors should buy it and keep it, according to data compiled by Bloomberg.
Which makes Amazon something few analysts ever believed it could become: a value stock, fetching a modest price considering the company’s opportunities for growth.
To understand why Amazon remains a bargain means acknowledging the commitment to create efficiency for consumers by spending more money on more works in progress than anyone. Amazon's market capitalisation just became greater than the combined worth of the leading companies in six different industries where it is a competitor.
The prospectus from the initial sale of Amazon stock on May 14, 1997 said the online bookseller might never make money, and that its operating costs were greater than rivals Barnes & Noble and Borders Group. Within a month, Amazon was down 19 per cent. The company's gross margin (revenue after the cost of goods sold) of 22 cents on the dollar was dwarfed by Barnes & Noble's 36 cents and less than Borders' 27 cents. While first-quarter sales surged to $16 million from $875,000 a year earlier, losses widened to $3m from $331,000.
"I just don't see how they're going to have the muscle to pull this off," McCabe Capital Partners' Steve Zenker told Bloomberg News in May 1997. He was expressing the widespread opinion that Amazon was incapable of trading at a discount relative to dividends, earnings and sales, and that the fundamentals of value investing such as a high dividend yield and low price-to-earnings ratio were impossible for the Seattle internet start-up.
Amazon chief executive Jeff Bezos famously took the opposite view. "It just doesn't make sense to focus on the day-to-day stock price," he told Bloomberg a month after the initial public offering. He said he was "obsessed" with customers because "it's easy in a competitive situation to get totally focused on your competition and lose sight of your bread and butter."
The strategy of relentlessly innovating by reducing customer costs and increasing convenience at the expense of quarterly earnings helps explain why Amazon shares beat the world and gained 498 per cent during the past five years as the top performer among the 15 companies in the Bloomberg Intelligence Global E-Commerce Index. The also-ran S&P Consumer Discretionary index and S&P 500 advanced 107 percent and 87 percent. It took less than a year for Amazon's market capitalisation of less than $500m to exceed the $2.6 billion of No 1 Barnes & Noble. By 2015, Amazon was worth more than $220bn, exceeding the value of Walmart, even though the world's largest retailer had $505bn in total revenues, more than double Amazon's $193bn at that point.
In the business of leasing information-technology gear, by contrast, Amazon didn't need to play catch-up. "Amazon had over a five-year head start over its rivals in cloud computing, where enterprises rent infrastructure instead of buying it," said Anurag Rana, a senior analyst at Bloomberg Intelligence.
Despite strong growth over the past decade, the cloud computing business represents less than 10 per cent of total information-technology spending, which shows that the cloud has a lot more room to grow in the coming years. This shift in spending is likely to disadvantage legacy tech companies like IBM and Oracle.
Amazon also is competing in video streaming with Netflix, whose market capitalisation still is about a fifth of Amazon's after growing 10 times during the past five years. US President Donald Trump's attacks on Amazon may hasten the company's plans to become an entrenched logistics leader, having already overtaken United Parcel Service in 2009. Few were surprised when Amazon said on June 28 that it was buying PillPack, a nationwide drug network competing with traditional pharmacy chains like including Walgreens Boots Alliance and CVS Health.
Amazon is now worth more about as much as the combined $831bn market capitalisation of six competitors, Barnes & Noble, Walmart, IBM, Oracle, Netflix and UPS. And money managers are showing that they expect this kind of relative strength to persist: 730 non-index mutual funds in the US invested $103bn in Amazon, easily surpassing the $73bn invested by 1,171 non-index funds in the six rivals combined, according to data compiled by Bloomberg.
And Amazon invests huge sums on technology and content spending for future product development, $25bn during the past 12 months. That dwarfs the $18bn spent by another big investor in research and development, Samsung Electronics. The R&D expenses of more than 1,000 global retailers, excluding Amazon, was $9bn for the same period.
"Two facts make Amazon unique," said Jitendra Waral, a senior analyst at Bloomberg Intelligence. "The DNA of the company is to try to cut the number of steps to zero for a consumer to buy goods from Amazon. Amazon wins by constantly changing behaviour through innovation. The company spends eight to 10 years to research new products so it always is thinking much ahead. Amazon's end market is 16 per cent of global gross domestic product, excluding China. To put this in context, if Amazon's end market was the Empire State Building, it still is on the third floor. This gap creates plenty of return-on-investment opportunities for their long-term investments."
That's pretty much the definition of a value stock.
Bloomberg
UAE currency: the story behind the money in your pockets
Top 10 locations for inquiries from US house hunters, according to Rightmove
Edinburgh, Scotland
Westminster, London
Camden, London
Glasgow, Scotland
Islington, London
Kensington and Chelsea, London
Highlands, Scotland
Argyll and Bute, Scotland
Fife, Scotland
Tower Hamlets, London
Coffee: black death or elixir of life?
It is among the greatest health debates of our time; splashed across newspapers with contradicting headlines - is coffee good for you or not?
Depending on what you read, it is either a cancer-causing, sleep-depriving, stomach ulcer-inducing black death or the secret to long life, cutting the chance of stroke, diabetes and cancer.
The latest research - a study of 8,412 people across the UK who each underwent an MRI heart scan - is intended to put to bed (caffeine allowing) conflicting reports of the pros and cons of consumption.
The study, funded by the British Heart Foundation, contradicted previous findings that it stiffens arteries, putting pressure on the heart and increasing the likelihood of a heart attack or stroke, leading to warnings to cut down.
Numerous studies have recognised the benefits of coffee in cutting oral and esophageal cancer, the risk of a stroke and cirrhosis of the liver.
The benefits are often linked to biologically active compounds including caffeine, flavonoids, lignans, and other polyphenols, which benefit the body. These and othetr coffee compounds regulate genes involved in DNA repair, have anti-inflammatory properties and are associated with lower risk of insulin resistance, which is linked to type-2 diabetes.
But as doctors warn, too much of anything is inadvisable. The British Heart Foundation found the heaviest coffee drinkers in the study were most likely to be men who smoked and drank alcohol regularly.
Excessive amounts of coffee also unsettle the stomach causing or contributing to stomach ulcers. It also stains the teeth over time, hampers absorption of minerals and vitamins like zinc and iron.
It also raises blood pressure, which is largely problematic for people with existing conditions.
So the heaviest drinkers of the black stuff - some in the study had up to 25 cups per day - may want to rein it in.
Rory Reynolds
Iftar programme at the Sheikh Mohammed Centre for Cultural Understanding
Established in 1998, the Sheikh Mohammed Centre for Cultural Understanding was created with a vision to teach residents about the traditions and customs of the UAE. Its motto is ‘open doors, open minds’. All year-round, visitors can sign up for a traditional Emirati breakfast, lunch or dinner meal, as well as a range of walking tours, including ones to sites such as the Jumeirah Mosque or Al Fahidi Historical Neighbourhood.
Every year during Ramadan, an iftar programme is rolled out. This allows guests to break their fast with the centre’s presenters, visit a nearby mosque and observe their guides while they pray. These events last for about two hours and are open to the public, or can be booked for a private event.
Until the end of Ramadan, the iftar events take place from 7pm until 9pm, from Saturday to Thursday. Advanced booking is required.
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The specs: Lamborghini Aventador SVJ
Price, base: Dh1,731,672
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At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
Heather, the Totality
Matthew Weiner,
Canongate
The specs
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Price: $1,075 new in 1967, now valued at $40,000
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The 12
England
Arsenal, Chelsea, Liverpool, Manchester City, Manchester United, Tottenham Hotspur
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
The figure was broadly flat immediately before the Covid-19 pandemic, standing at 216,000 in the year to June 2018 and 224,000 in the year to June 2019.
It then dropped to an estimated 111,000 in the year to June 2020 when restrictions introduced during the pandemic limited travel and movement.
The total rose to 254,000 in the year to June 2021, followed by steep jumps to 634,000 in the year to June 2022 and 906,000 in the year to June 2023.
The latest available figure of 728,000 for the 12 months to June 2024 suggests levels are starting to decrease.
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Lower Bowl Platinum - Dh95
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Tips for job-seekers
Do not submit your application through the Easy Apply button on LinkedIn. Employers receive between 600 and 800 replies for each job advert on the platform. If you are the right fit for a job, connect to a relevant person in the company on LinkedIn and send them a direct message.
Make sure you are an exact fit for the job advertised. If you are an HR manager with five years’ experience in retail and the job requires a similar candidate with five years’ experience in consumer, you should apply. But if you have no experience in HR, do not apply for the job.
David Mackenzie, founder of recruitment agency Mackenzie Jones Middle East
