Stock Market Overview: Weekly Trek 27

Amazon is the second company to reach a $1 Trillion valuation, but will they reach $2 trillion before Apple? Jack Ma steps down as Chairman of Alibaba, while JD’s founder gets arrested and released and ING joins the money laundering party.

Amazon

Amazon is the second company to reach a $1 Trillion valuation. The question now is, will they beat Apple to $2 Trillion?

Amazon has far more parallels that it can expand into and Amazon Web Services (AWS) is a booming Amazon service that helped them reach $1 Trillion and could be the driving force that helps them to surpass Apple.

The profit from AWS also helped them to buy Whole Foods & Pill Pack (grocery store & pharmacy) and could give them the funding to expand into the travel business again (it failed in 2015).

Morgan Stanley put out a report in March suggesting that Amazon may go after the likes of Priceline owner Booking Holdings (BKNG) and its rival Expedia (EXPE).

With the increasing opportunity in eSports, Amazon’s gaming business, led by video site Twitch, could also give Amazon the boost it needs to reach $2 Trillion.

Analysts are already forecasting average annual earnings growth of 46% for Amazon over the next five years, compared with estimates of just 13% growth annually for Apple.

Value investors (ones that look for high profit margins and low share prices, meaning stocks trading at a discount relevant to their company valuation) haven’t been able to understand how Amazon has been able to grow.

But, a company’s success isn’t always about money, it’s about branding. Investors, like myself, that bought into Amazon stock also know that despite their earnings/profit, their branding has seen their stock price grow by 600% in the last 5 years. Here’s how other retailers have performed. Think that’s impressive?

A $1,000 investment into Amazon in 1997, when they listed on the stock exchange in New York, would equal $1,362,000 according to CNBC today. That’s a 134,000% increase since 1997.

Yep, I’d say that’s a valued and valuable investment despite what traditional ‘value investors’ would say.

In other news, the value of Alibaba may be leaving with its co-founder.

Alibaba

Jack Ma walks away from Alibaba, the Chinese ecommerce giant he co-founded.

It is rare for a Chinese tycoon, particularly China’s richest man to step down in their 50s.

Taking over the reigns as chairman will be current CEO Daniel Zhang while Mr. Ma stays on as a member of the board and goes back to his roots in education.

Alibaba has already been experiencing declining profits and a volatile share price.

Side note: Chinese stocks are predominately backed by retail (every day, mum and dad type) investors which causes Chinese stocks to naturally be more volatile.

Under President Xi Jinping, China’s internet industry has grown and become more important, Ma’s departure is likely to be felt by the Chinese internet industry and in turn it’s stock market as the Chinese economy is also facing slowing growth and increasing debt with the escalating trade war.

This has come at a less than ideal time with the recent arrest of the founder of another Chinese internet giant.

JD

China’s internet industry has been reeling from the arrest last weekend of Liu Qiangdong, the billionaire founder of the online retailer JD.com. Mr. Liu, who goes by Richard Liu in the English-speaking world, was arrested on a rape allegation in Minneapolis during a business trip. He was released and has since returned to Beijing, where JD.com is based.

I’ll let their stock price do the talking on this one but it’s not the only company facing issues on an executive level.

ING

ING fired its chief financial officer (CFO) Koos Timmermans today following a scandal over the lender’s failure to vet clients in order to prevent money laundering.

Timmermans’ head is the first to roll after it emerged last week that the Netherlands’ number one bank paid €775 million (Dh3.32 billion) to settle a criminal investigation over money laundering.

Prosecutors say ING for years failed to adequately implement a law aimed at preventing money laundering.

But, if you’re Elon Musk (you can read more about it here) it might be time to start lighting up a joint, pouring yourself a whiskey and wielding a samurai sword while your top executives leave the building.

Until next week,

Steph

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