Amazon’s mind-boggling ascent
The company and its founder have taken dominant positions in so many areas that they defy categorization.
Yet noteworthy as these real-world achievements are, they may understate Amazon’s importance. Despite an earnings report Thursday evening that disappointed the market and led to a 2.5 percent decline in its share price, Amazon is remarkable as a purely financial entity. Its stature as one of the most successful companies in the history of the stock market is already assured. In fact, the numbers show that since 1997, when it became a publicly traded company, Amazon has evolved into one of the century’s greatest wealthgenerating machines.
“Amazon now belongs in a very small group of stocks,” said Hendrik Bessembinder, a finance professor at Arizona State University. “It’s one of the greatest wealth creators since 1926, and it’s reached that status in a very short period of time.”
When I first spoke with Bessembinder in May, he had prepared a list of the 30 greatest wealth creators in the stock market through 2015. But this past week, he showed me a Lifetime Wealth Creation list, with fresh rankings through 2016. The stocks at the very top remained the same: Exxon Mobil, followed by Apple, General Electric, Microsoft and IBM.
But further down the list, Amazon appears for the first time. It is ranked 14th, just behind such august names as Berkshire Hathaway and Procter & Gamble and ahead of Coca-Cola and DuPont.
In essence, the list shows which stocks have been the most profitable for shareholders over history. A very small group — 4 percent of all publicly traded stocks — account for all of the stock market’s net gains from 1926 through 2016, he found. And only 30 stocks — Amazon is now one of them — account for more than 30 percent of all of the market’s wealth creation in that 90-year period.
What’s more, Bessembinder found that Amazon’s annualized return through 2016 was 37.4 percent, the highest of all the top 30 wealth creators. That is partly because Amazon hasn’t existed for that long: It’s easier to sustain fast growth for shorter periods. Exxon, for example, which has created more than $1 trillion in wealth for shareholders since 1926, more than any other company, ground out its gains at a slower pace: It has an annualized return of only 11.9 percent, Bessembinder said.
Even after the earnings blip Thursday, Amazon’s value in the market has skyrocketed this year. It has risen more than 36 percent. “If it holds onto those gains, we can expect that it will climb higher on the cumulative wealth creation list,” he said.
Of course, while Amazon’s market power has been wonderful for its own investors, it has damaged many of its competitors — diminishing the wealth of shareholders of those companies.
Consider how Amazon’s cumulative stock returns dwarf those of its retail competitors and the overall market. Using Thomson Reuters data, I calculated that over the last 15 years through Tuesday, Amazon returned more than 8,200 percent, compared with 125 percent for Walmart, 2.2 percent for Sears, and 302 percent for the Standard & Poor’s 500-stock index, dividends included.
If you had invested $1,000 in Amazon in July 2002 — and had held onto your shares — that money would be worth $83,000 today.
By comparison, $1,000 invested in the entire Standard & Poor’s 500stock index, with dividends, would amount to $4,100 — not a bad performance, until you look at the gaudy Amazon returns. Far worse, if you had put the money in Walmart shares, your investment would be worth only $2,250. And if you had stuck with Sears during all of its travails, you would be almost where you started, with $1,022.
Those figures aren’t adjusted for inflation, however, so the Sears return is more miserable than it looks. The Bureau of Labor Statistics calculator shows that $1,022 is worth only $751 in 2002 dollars. Ouch. (To be fair, the $83,000 in current Amazon cash is about $61,000 in 2002 dollars. But that’s still an eye-popping sum.)
Bespoke Investment Group, a stock market research firm, has another way of comparing Amazon’s stock returns with those of its retail competitors. It has built the Death by Amazon Index, which it describes as “a way to track the performance of the companies most affected by the rise of Amazon.com.” Those companies — there are now 54 of them — include Barnes & Noble, Costco, Best Buy, GameStop, Macy’s, Nordstrom, Sears, Target, CVS Caremark, Rite Aid and Walmart.
The numbers are stark. The Death by Amazon Index has declined 18.9 percent through Monday – trailing Amazon by almost 55 percentage points.
No Amazon investor has as much money in the company, or has benefited as much from the stock’s rise, as Bezos. He owned 16.7 percent of the company in May 2017, according to a Securities and Exchange Commission filing. His stake is worth more than $80 billion, according to Bloomberg, accounting for the bulk of his personal wealth.
His stake in Blue Origin, the spaceflight firm, is worth an additional $3 billion, Bloomberg said. His net worth hovers around $90 billion, placing him neck and neck with Bill Gates, the founder of Microsoft.
Unlike Gates, who has diversified his portfolio and has been giving money to charity at a rapid pace, Bezos continues to bet heavily on Amazon. As Thursday’s earnings report showed, that does entail risk. The company’s ever-expanding retail operations are sapping its profits, but it has been raking in earnings through cloud computing. As has been the case since Amazon’s inception, it pays no dividends, instead plowing cash back into the company’s core.
For now, the mighty Amazon wealth-creation machine continues to roar. Whatever happens next, this is already one of the great tales in the history of capitalism.