Monday, December 27, 2010

What Is $1.00 Worth?

What is $1.00 worth, when earned by our leading technology companies? If we look at their current market capitalizations, and subtract out their cash and marketable securities, we are left with a valuation that, when compared with their annual net income, gives us a very crude approximation of what a $1.00 is worth when earned by them. Here is what $1.00 is worth for:

Amazon: $67.60.
Apple: $17.60.
Google: $20.00.
Microsoft: $9.50.

Clearly, $1.00 in earnings is not worth the same at these companies. Apple and Google are in the same valuation arena, while Microsoft is lagging far behind them -- each $1.00 of its earnings worth about half of theirs. Meanwhile, Amazon is wildly outpacing all them, with each of its $1.00 in earnings worth more than 3x what a comparable $1.00 is worth at Apple and Google. Is Amazon really that much more valuable than Apple and Google?

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