E-commerce giant Amazon broke a record early this week, becoming the second company in history to reach a market cap of $1 trillion.

What happened?

On Tuesday morning, Amazon’s stock surpassed $2,050 a share. That sent the company’s market cap, or valuation, above $1 trillion.

In August, iPhone manufacturer Apple made history as the first company whose market cap surpassed $1 trillion.

At least two other prominent technology companies—Google and Microsoft—are closing in on similar milestones, with valuations close to $900 billion.

Why is this important:

  • Market cap is the measure of a company’s entire worth on the market; and the market seems to be saying that Amazon is currently very valuable, according to experts.
  • Amazon is a retailing steamroller that sells everything under the sun—including books and appliances, as well as cloud computer storage space, gadgets such as the Kindle Fire, and its virtual voice assistant Alexa. It also specializes in data collection—predicting what you might want to buy next, based on what you’ve purchased in the past, as well as logistics—or the quick delivery of all those packages you order. It recently purchased high-end supermarket Whole Foods, as it tackles groceries and physical retail sales.
  • Amazon captures nearly half of all dollars that consumers spend online in the U.S., according to reports.
  • It’s important to realize that market cap doesn’t tell the whole story, and there are other ways to value a company. (Something called a Price/Earnings ratio is another method.) In fact, a company can have a very high valuation and share price when it’s subject to unrealistic investor expectations about its performance.

How do you calculate market cap?

It’s simple: you multiply the number of a company’s outstanding shares by its current share price. Learn more about market cap here.

Amazon has 474,740,000 shares outstanding. On Tuesday, it’s share price closed at $2,050.50.

487,740,000 X $2050.50=$1,000,110,870,000.

To put it another way, Amazon has nearly half a billion shares that it sells to the public. When you multiply half a billion by a share price of more than $2,000, you get a valuation of approximately $1 trillion.

How does Amazon’s valuation compare?

One trillion dollars is a staggering amount of money. To get some perspective, here are the respective market caps of some other big U.S. companies.

$0B
Boeing
$0B
Coca-Cola
$0B
General Motors
*Source: Yahoo Finance, as of mid-day September 6, 2018

Other things to keep in mind

On Wednesday, Amazon’s stock price fell a bit, pushing its market cap just below the $1 trillion threshold, where it remains.

Facts about Amazon: Jeff Bezos founded Amazon in his garage in 1994, as an online bookseller. It went public in 1997 with a valuation of $500 million. Amazon has made Bezos a very rich man. His fortune is currently worth about $166 billion, making him the richest person in the world.