Amazon vs. Alphabet: Which FAANG Stock is a Better Buy?

NASDAQ: AMZN | Amazon.com, Inc. News, Ratings, and Charts

AMZN – Amid ballooning digital dependence worldwide, FAANG stocks have been reaping the most benefits because of their overwhelming market share. Both Amazon.com (AMZN) and Alphabet (GOOGL) have been advancing faster than ever due to the world’s accelerating shift from analog to digital lifestyles in recent months. But, putting the regulatory scrutiny they are both currently facing to the side for a moment, let’s find out which of these stocks is a better buy now.

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.

Latest Movements

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.

Profitability      

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%.

Valuation

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.

POWR Ratings

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.

The Winner

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.

 


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...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
AMZNGet RatingGet RatingGet Rating
GOOGLGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


:  |  News, Ratings, and Charts

Top 10 Value Stocks

The S&P 500 (SPY) has shown mixed results in the last week, but if you are a value investor, then yesterday was a big day. That’s when we revealed to our readers the fatal flaws of traditional value investing and the solution to this problem—our Top 10 Value Stocks strategy. Read on below to find out more about this 3-step process and its +38.63% annual returns…

:  |  News, Ratings, and Charts

2 Buy-Rated Tech Stocks Heating Up This Month

Even though investors are rotating away from tech stocks to capitalize on the economic recovery by betting on cyclical stocks, there is little doubt that the need for more advanced technology in several industries will help the sector rebound quickly to outperform the broader market. So, we think it is wise to invest now in Nokia (NOK) and EchoStar (SATS). They have already generated significant returns this month and still have plenty of upside. Read on.

:  |  News, Ratings, and Charts

Stock Market Deja Vu

My last two commentaries were spent on the very topic that is unfolding now. That the S&P 500 (SPY) seeming breakout above 4,200 was premature with a likely pullback to follow. And then how the market goes through a normal cycle to wash out excess, which helps store up energy for the next bull leg higher. So for as much as I hate repeating myself, I will need to do a bit of that this week to get your heads properly wrapped around the current market environment. And thus prepared for what lies ahead. Read on below to find out more…

:  |  News, Ratings, and Charts

3 Red-Hot Restaurant Stocks That Should Continue to Rally

The COVID-19 crisis has shifted the restaurant industry’s landscape. The digital platforms and curb-side delivery options adopted during the pandemic are expected to continue being one of the industry’s key strengths after the pandemic. While this transition has already bolstered the growth of established restaurant operators McDonald’s (MCD), Yum! Brands (YUM), and Restaurant Brands International (QSR), the increasing resumption of patrons’ physical visits to restaurants, thanks to a speedy and effective vaccination drive, we think should drive their growth further and sustain their stocks’ continued rally. Read on.

:  |  News, Ratings, and Charts

Stock Market Deja Vu

My last two commentaries were spent on the very topic that is unfolding now. That the S&P 500 (SPY) seeming breakout above 4,200 was premature with a likely pullback to follow. And then how the market goes through a normal cycle to wash out excess, which helps store up energy for the next bull leg higher. So for as much as I hate repeating myself, I will need to do a bit of that this week to get your heads properly wrapped around the current market environment. And thus prepared for what lies ahead. Read on below to find out more…

Read More Stories

More Amazon.com, Inc. (AMZN) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All AMZN News