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

Just to see whether this theory held water – I made a chart looking at gross profits instead of net — because as far as Amazon goes, its microscopic net margin doesn’t seem to matter to investors. I’m generally all about the net profit, but to offer some insight into Amazon’s meteoric stock price, maybe the gross profit will work better.

Looking at the chart, Amazon looks like it is increasing revenues and gross profits, while consistently keeping constant gross margins. Amazon doesn’t look bad at all until you factor in the net income.

So Apple has Amazon beat in everything except stock price. This means that as far as Amazon is concerned, this extreme spending for expansion at the expense of current profit is desirable to investors, because Amazon is doing something useful with its cash. And that means that everybody expects Amazon’s strategy to pay off at some point. Amazon does have a lot of room to grow, which might be true considering their revenue is still only 12% of that of Wal-mart.

So even though subjectively there might be some logic to “Amazon misses but stock soars“, there is relatively less logic, looking at the chart, to Apple’s stock drop. However, looking beyond the chart. Apple can be seen as the opposite case of Amazon.

In spite of having more cash than it could ever need, Apple is losing marketshare to the plethora of Android devices.  Apple possibly needs to spend more and get ahead, instead of resting on their existing laurels. So you could say that their cash is mismanaged. They have too much, and are neither giving it back to investors, nor investing it in their business.

I’m still long Apple for now, and avoiding Amazon, though. I’m not sure how long Amazon can continue making no money . It has been going at this strategy for a long time, and it is time to start making more money. Apple seems to learn its lesson, just like it did with the iPad mini. There’s still plenty of market for Apple to enter into, even with existing products.

The article Rethinking Apple and Amazon – All about the Cash originally appeared on Fool.com and is written by Siddharth Dalal.

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