Intelligent Speculator

I have written a few times about Apple and found it very interesting to see the reaction to the launch of the tablet a couple of weeks ago. Seems like expectations were so high for Steve Jobs that there was no way it could live up to the hype. But Apple remains very solid and I still expect sales of Ipod’s and Iphones to provide the high sales that are expected. The Ipad is a longer term project that does have a future and I do think that it will eventually become a solid contribution to Apple’s revenues/earnings.

I also think the recent direction of Apple into advertising and competing with Google will provide some diversification to the model. I had written about the impact of Apple’s Ipad on Amazon’s Kindle and the power shift from Amazon to Apple but what shocked me was seeing Amazon’s purchase of a company to advance its touch screen technology. Are these guys serious? They waited all of this time before considering Apple a serious enough threat? Kindles will still be sold and bring revenues to Amazon but I believe that putting too much energy into this battle with Apple will take away Amazon’s focus from what is its core; its sales and distribution network.

When taking a look at the P/E ratios of both companies, it is striking how expensive Amazon has become with Apple’s recent decline. It is trading at almost twice Apple’s ratios for the next two years as per Bloomberg estimates, something that makes little sense to me, especially when you consider how strong Apple’s core products continue to be.

In terms of traffic, the data is not as useful since Apple does not need nearly as much traffic given the average order size but still, you can see that traffic growth from Apple is slightly better than Amazon’s over the past 12 months (+17.25% for Apple vs +15.18% for Amazon). Again, maybe comparable but then why is Amazon trading at such a high P/E ratio?

Here are the stock charts for both companies: