Companies can "grow" into the valuation by actually making more money (enough to justify the market cap), which is what many people believe will happen with Amazon
As for parent comment regarding WS / SV, I see WS as the TicketMaster of the business world: they end up taking the flak for all of the various practices, when in fact other entities (like VC firms) are also pushing for the IPOs and other questionable practices
It's entirely plausible Amazon will grow into its current valuation. What that really means however, is the stock will produce at best a zero return for the next decade. In the case of massive overvaluations, the future gains are merely pulled forward.
If we give Amazon a huge benefit, and say that ten years from now it deserves a 50% higher PE than Walmart currently enjoy (during a huge bull market); spot their future PE at say: 21. They need to generate nearly $8 billion in net income. Once again give them a huge benefit and say they can hit a 5% to 6% net income margin against their sales (Walmart tends to be in the low 3's). They need to get to $160b in sales in ten years, with excellent margins (for what they do). Possible? The sales definitely are, the margin will be hard to hit. That's the good scenario, and if they pull off that good scenario, the stock only breaks even in nominal terms; inflation adjusted it might be down by 1/3.
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Companies can "grow" into the valuation by actually making more money (enough to justify the market cap), which is what many people believe will happen with Amazon
As for parent comment regarding WS / SV, I see WS as the TicketMaster of the business world: they end up taking the flak for all of the various practices, when in fact other entities (like VC firms) are also pushing for the IPOs and other questionable practices
It's entirely plausible Amazon will grow into its current valuation. What that really means however, is the stock will produce at best a zero return for the next decade. In the case of massive overvaluations, the future gains are merely pulled forward.
If we give Amazon a huge benefit, and say that ten years from now it deserves a 50% higher PE than Walmart currently enjoy (during a huge bull market); spot their future PE at say: 21. They need to generate nearly $8 billion in net income. Once again give them a huge benefit and say they can hit a 5% to 6% net income margin against their sales (Walmart tends to be in the low 3's). They need to get to $160b in sales in ten years, with excellent margins (for what they do). Possible? The sales definitely are, the margin will be hard to hit. That's the good scenario, and if they pull off that good scenario, the stock only breaks even in nominal terms; inflation adjusted it might be down by 1/3.