Reasons have much to do with the fact a $1,000 share price is a difficult psychological barrier to overcome and also the ways in which valuation is determined for both companies.
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It’s A Tough Hurdle
Though both companies have fans, a $1,000 share price is a tough hurdle to jump. It’s both technical and psychological. For example, high share prices result is fewer trades experts note. Fewer trades can mean that each trade can have a bigger impact on share prices. This can be seen as a negative and an opportunity for market manipulation.
When share prices get as high as they are for both Amazon and Alphabet, there’s also a lot of chatter about splitting the stocks to make them more accessible by retail investors. According to experts, exchanges operate best when stocks are between $20 and $80.
Alphabet’s Valuation Problem
Alphabet is approaching a market value of $700 billion. Some question the basis for that valuation. For example, Morgan Stanley has suggested Alphabet’s autonomous driving technology division, Waymo, is worth $70 billion. Though this is a potential future valuation, the market has already priced this in with a $50 bump in the last few trading days.
Waymo’s valuation assumes the company would generate about $1.25 per mile in revenues which some find a leap at best. Compared with the cost of car ownership – versus the Alphabet model of transportation as a service – the spread seems higher than most consumers would willingly pay according to some observers.
Amazon By The Numbers
Amazon is up 32.5% year-to-date and also appeared close to that magical $1,000 benchmark at the end of last week. Analysts are optimistic with a $1,095 12-month price target on the stock. Other internet stocks are not faring as well with Facebook Inc. (NASDAQ:FBB) sitting near $150 and Netflix, Inc. (NASDAQ:NFLXC) around $160. This has caused less optimistic observers to question the valuation of internet stocks in general, including Amazon.
Amazon does some things going for it. The company has turned a profit for 8 straight quarters, mostly on the back of Amazon Web Services. Though the retail segment is less profitable, it is wildly popular and forcing retailers like Wal-Mart Stores Inc. (NYSE:WMTC) and others to totally upend their practices in order to compete.