Rethinking Apple Inc. (AAPL) and Amazon.com, Inc. (AMZN) – All about the Cash

Apple and Amazon could not be more different in their corporate philosophies regarding profits and cash. Amazon.com, Inc. (NASDAQ:AMZN) spends almost every dime it earns, keeping the net profit down as close to zero as possible. Apple Inc. (NASDAQ:AAPL), on the other hand, keeps most of it as cash that just sits around doing nothing. As an investor, one would like some kind of balance of cash hoarding, returning that cash to investors, or reinvesting it in the business. So these two extremes make an interesting comparison considering the market reaction after earnings season: Amazon continues to rise, while Apple continues to drop.

So far, I’ve been of the opinion that Apple Inc. (NASDAQ:AAPL) is a better investment, because it makes money — lots of it. However, Apple just hangs on to it, and then it does nothing for the company. Apple just started giving a minimal amount of that cash back to investors via dividends and buybacks, but not enough.

Also, Apple Inc. (NASDAQ:AAPL) invests less in R&D (notice how even troubled Nokia Corporation (NYSE:NOK) outspent Apple) than most of its competitors. So it’s not even investing seemingly enough of its money back into its own business.

In fact, every few days someone writes an article on how Apple can use their cash better. Even I can think of a few suggestions, like doubling its dividend, becoming vertically integrated like Intel Corporation (NASDAQ:INTC), or investing more in different lines of products or faster product update cycles. Not pursuing this latter strategy, and sticking to its guns on fewer product options, had been costing Apple Inc. (NASDAQ:AAPL) market share to Android devices, which offer more size, storage, screen, and technology options.

Now, Amazon, on the other hand, has relatively little cash on hand. It chooses to invest heavily in expanding its infrastructure. Logically, the primary reason to run a business is to make money. If you are running a business for that purpose, the best thing to do with money earned would be to invest it back in the business — exactly what Amazon has been doing, and exactly the opposite of Apple Inc. (NASDAQ:AAPL). Most quarters, Amazon revenue is growing faster than the growth of overall online retail, which means it is taking market share.

Looking at both the stocks from this perspective, Amazon can look like a better investment, because it seems to believe in its business more than Apple Inc. (NASDAQ:AAPL) does. Of course, Amazon is an extreme case. Most tech companies hoard cash. But almost everyone seems to be managing it better than Apple.