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Business Comment

Stephen Foley: So will it be Amazon or Apple taking the honours in the Tablet Premiership?


US Outlook: Sometimes we business reporters can feel a lot like sports commentators. Certainly this week, we have been writing about two of the world's largest technology companies as if they were United and City.

Amazon's manager, Jeff Bezos, has unveiled his team for the coming season of the Tablet Premiership, including a cut-price Kindle and a new full-service tablet called the Fire. Apple, which has just promoted Tim Cook to the manager's job, has a new iPhone out next week and is racking up sales of iPads at the rate of more than one per second. It's game on.

Mr Bezos did some trash talking of Apple this week, which always makes for good copy. Meanwhile, there is no shortage of pundits to quote, predicting which team will score most with consumers. Mainly, it is just great to have a real top-tier rivalry on our hands, after the embarrassing relegation of Hewlett-Packard, BlackBerry, Sharp et al.

You can take your own view on whether the Kindle Fire, launching in the US first in time for Christmas, will take a meaningful bite out of Apple's iPad franchise, and whether Amazon can now become the same major force in selling digital movies and music as it is in electronic books. For what it's worth, I think the absence of a phone from Amazon's line-up of devices puts it at a permanent handicap, but we will have to see.

The irony is that, although Amazon is the underdog in this fight between tech giants, and although Apple is the undisputed leader in consumer fandom and media hype, the stock market actually rates Amazon much, much more highly. If the price-earnings multiples of their respective shares were all you had to go on, you would think Amazon was Manchester United and Apple was Bolton.

On the Reuters calculation of consensus estimates, Apple trades on 14 times its current-year earnings, and on 13 times next year. Amazon is on a stratospheric 107 times, falling to the merely Icarusian 67 times.

How to explain the discrepancy? Apple, for all its innovative genius, has a decades-long stock market history as a common-or-garden computer manufacturer, one among many and one that went through the fire of near-oblivion in the Nineties. Amazon has never fallen from the dot.com bubble heights at which it launched. Mr Bezos has, more or less, met investors' expectations for the retailing core of the company, and raced effectively into vast, emerging businesses providing cloud computing services and distributing digital media. He is a class act, and the shares have never had the "reset" that surely will one day come.

Amazon cannot grow into its earnings multiple. That would require heroic improvements in margins, when at the moment Amazon's profitability is contracting sharply. Subsidising sales of the new Fire (on which one analyst reckons the company is losing $50 per device) and acquiring rights to content from TV broadcasters and movie studios will only depress margins further.

So I have this one prediction at the start of the Tablet Championship. Regardless of what happens on the field of play, regardless of whether it is Mr Cook or Mr Bezos who lifts the trophy of consumer sales, Amazon shares will be the loser.