Apple 2.0

Covering the business that Steve Jobs built

Bizzaro valuations: Amazon (P/E = 100) vs. Apple (14)

October 26, 2011: 7:21 AM ET

Even after Tuesday's free-fall, Amazon's shares cost seven times more than Apple's

It's never been adequately explained to me why Amazon's (AMZN) shares are so expensive and Apple's (AAPL) so cheap.

Both stocks were punished after reporting their most recent quarterly earnings. Apple fell $23.62 (5.6%) last week when the company came in with iPhone sales that were lower than analysts expected, reducing profit growth to 54%. Amazon fell $10.46 (4.4%) Tuesday after reporting net income down 73% and offering investors the strangest guidance I've ever seen:

"Operating income (loss) is expected to be between $(200) million and $250 million, or between 142% decline and 47% decline compared with fourth quarter 2010."

Apple, by contrast, is expecting next quarter's sales to grow by at least 38%, to $37 billion.

To be sure, the two companies are in very different businesses. But they are about to compete in the tablet market -- the only part of his business that Amazon CEO Jeff Bezos mentioned in Tuesday's press release -- and the contrast is striking.

Amazon will lose money on the Kindle Fire -- the more it sells, the more it loses -- hoping to make it up in the sale of  books, movies, music, etc.

Apple will make some money from music, apps and books, but the big bucks (and we're talking billions) come from the sale of its high-margin hardware.

Two different business models. Both growing rapidly, both (mostly) profitable. But at Tuesday's close, Apple's shares (at $397.77) were selling at 14.4 times trailing earnings and Amazon's ($227.15) were selling at 100.2.

Can someone tell me why?

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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