The popular acronym “FAANG” refers to the big five tech giants: Facebook, Inc. (FB), Amazon.com, Inc. (AMZN), Apple, Inc. (AAPL), Netflix, Inc. (NFLX), and Alphabet, Inc. (GOOGL). The companies dominate their markets and have achieved stellar financial performance over the years. While AMZN’s ecommerce platform exploded amid the pandemic due to an increase in online buying, GOOGL’s cloud computing continues to witness elevated use amid the current and ongoing digital revolution.
While much of the global economy reeled from the effects of the COVID-19 pandemic, AMZN and GOOGL have witnessed formidable business ascendance. A surge in online shopping and cloud computing activities have contributed to double-digit gains for these two companies. And despite their growing regulatory distractions, we think AMZN and GOOGL should continue to reap long-term results from their technological innovation.
AMZN has gained 65.1% over the past year, while GOOGL has returned 88.2% over the same period. Also, in terms of year-to-date performance, GOOGL surpassed AMZN’s 3.5% returns by gaining 29.6%. But which of these stocks is a better pick now? Let’s find out.
This month, AMZN’s Amazon Web Services, Inc. (AWS) introduced the general availability of Amazon Lookout for Equipment services to enable customers to perform machine learning to accurately detect equipment abnormalities. This introduction should allow businesses to improve their operational efficiencies by avoiding expensive downtime due to equipment failure.
In March, AMZN and the National Football League forged a 10-year agreement to broadcast 15 exclusive regular-season, Thursday Night Football games and one pre-season game per year on Prime Video in the United States. This will provide Prime members exclusive access to live football in addition to its broad selection of other content, including award-winning Amazon Originals.
Last month, GOOGL inked a multi-year partnership with Albertsons Companies to introduce innovative technology for millions of customers on an omnichannel scale. Albertsons’ collaboration is expected to make the shopping experience easier and convenient by integrating with Google Search and Maps, while infusing Google Pay and Google Cloud AI technologies to develop the world’s most predictive grocery engine.
Recent Financial Results
During the fourth quarter, ended December 31, 2020, AMZN’s net product sales increased 40.6% year-over-year to $71.06 billion. The company’s net service sales increased 47.7% year-over-year to $54.50 billion. Furthermore, its net income was $7.22 billion, representing an increase of 121% year-over-year. Its EPS increased 117.8% year-over-year to $14.09.
GOOGL’s total revenue increased 23.5% year-over-year to $56.9 billion in the fourth quarter, ended December 31, 2020. The company’s operational income was $15.65 billion, representing an increase of 68.9% from its year-ago value. Its net income rose 42.7% year-over-year to $15.23 billion, while its EPS grew 45.3% from the prior-year quarter to $22.30.
Past and Expected Financial Performance
AMZN’ revenue and EBITDA have increased at CAGRs of 29.5% and 45.7%, respectively, over the past three years. In comparison, GOOGL’s revenue and EBITDA grew at annualized rates of 18.1% and 15.3%, respectively, over this period.
AMZN’ revenue is expected to rise 21.3% in the quarter ending June 30, 2021 and 22.7% in the current year. A consensus EPS estimate indicates a 4.7% improvement next quarter and 14% in fiscal 2021. In comparison, analysts expect GOOGL’s revenue to increase 37.7% next quarter and 23.9% in 2021. Also, the company’s EPS is estimated to increase 54.4% next quarter and 18.4% in the current year.
AMZN’ trailing-12-month revenue is twice GOOGL’s. But GOOGL is more profitable with a gross profit margin of 53.6% versus AMZN’ 39.6%.
In fact, GOOGL’s net income margin of 22.1% compares favorably with AMZN’s 5.5%.
In terms of non-GAAP forward PEG, AMZN is currently trading at 1.96x, 11.4% higher than GOOGL, which is currently trading at 1.76x. Also, its trailing-12-month Price-to-Book of 18.16x is 163.6% higher than GOOGL’s 6.89x.
In terms of trailing-12-month EV/EBITDA also, AMZN’s 35.62x is 37.1% higher than GOOGL’s 25.98x.
GOOGL has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. However, AMZN has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
In terms of Quality Grade, both AMZN and GOOGL have a B, consistent with their higher-than-industry gross profit margins.
Both AMZN and GOOGL B Sentiment Grades, which is in sync with analysts’ expectation that their EPS and revenue will increase significantly in the coming quarters.
GOOGL has a Momentum Grade of B, consistent with its price returns so far this year. In comparison, AMZN has a C grade for Momentum.
Of the 71 stocks in the Internet industry, GOOGL is ranked #2 while AMZN is ranked #8.
Beyond what we’ve stated above, our POWR Ratings system has also rated both GOOGL and AMZN for Value, Growth, and Stability. Get all GOOGL’s ratings here. Also, click here to see the additional POWR Ratings for AMZN.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Although AMZN continues to be the ecommerce behemoth after growing its sales and revenue considerably amid the pandemic, antitrust investigations by U.S. and E.U. regulators could be a hurdle in the company’s path to long-term growth. A gradual return of pre-pandemic outdoor shopping patterns with the ongoing vaccination drive could also slow its growth stride.
GOOGL is in a much better position to capitalize on the tech market’s stunning boom. With cloud computing and AI driven platforms hot tickets as digital activities worldwide soar, GOOGL has plenty of room to grow. So, we believe GOOGL is a better investment currently.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about the top-rated stocks in the Internet industry.
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AMZN shares were trading at $3,368.99 per share on Monday morning, down $3.21 (-0.10%). Year-to-date, AMZN has gained 3.44%, versus a 10.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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