(NASDAQ: AMZN) and Google-parent Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) have arguably defined the technology industry more than any other two companies over the last two decades.” data-reactid=”11″ type=”text”>Amazon.com (NASDAQ: AMZN) and Google-parent Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) have arguably defined the technology industry more than any other two companies over the last two decades.
The average American consumer likely comes into contact with both these companies’ services and products every day, whether that’s through Google search, a video on YouTube, ordering a product on Amazon, or using a website powered by the cloud computing division Amazon Web Services (AWS).
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FANG group of tech stocks. The chart below shows how the two stocks have done over the last five years.” data-reactid=”34″ type=”text”>As stocks, it’s not surprising that both companies have outperformed the market through much of their history. After all, Amazon and Google are part of the famed FANG group of tech stocks. The chart below shows how the two stocks have done over the last five years.
AMZN Chart
AMZN data by YCharts.” data-reactid=”48″ type=”text”>AMZN data by YCharts.
An evolving e-commerce engine” data-reactid=”50″ type=”text”>An evolving e-commerce engine
from Google. Not only are both of those segments growing quickly, but they’re highly profitable. Amazon generated an operating margin from AWS of 28.4% last year, and digital advertising is known for its wide profit margins, as results from Google and Facebook make clear.” data-reactid=”51″ type=”text”>Amazon is best known as an e-commerce giant, but the company has leveraged that strength to spread into other businesses. Two of its most promising growth opportunities are AWS, where revenue jumped 41% to $7.7 billion in its most recent quarter, and advertising, the primary component of its “other” business, which saw a 34% increase in revenue to $2.7 billion. Its advertising business is also notably grabbing market share from Google. Not only are both of those segments growing quickly, but they’re highly profitable. Amazon generated an operating margin from AWS of 28.4% last year, and digital advertising is known for its wide profit margins, as results from Google and Facebook make clear.
Amazon hasn’t forgotten about e-commerce. It’s third-party marketplace is seeing significant growth, generating much higher margins than direct sales do. And investors were also encouraged by its first-quarter earnings report when the company said it would invest $800 million to make one-day free delivery available to its Prime members in the U.S., cutting the normal delivery time from two days. Prime is key to Amazon’s network of competitive advantages, and the decision to cut the delivery time should help it improve customer loyalty and bring in more new members.
transitioning from revenue growth to profit growth and building its competitive advantages along the way. While the stock is highly priced, Amazon appears to be executing its strategy seamlessly.” data-reactid=”58″ type=”text”>All of the moves above show the company successfully transitioning from revenue growth to profit growth and building its competitive advantages along the way. While the stock is highly priced, Amazon appears to be executing its strategy seamlessly.
Alphabet stock stumbled after its latest earnings report showed the number of its paid clicks growing more slowly than expected. Paid clicks increased 39% in the period, a strong number but down from growth in recent quarters in the 50% to 60% range. Meanwhile, cost-per-click continued to decline, falling by 19% in the period. If that pattern continues, it could threaten Alphabet’s historically strong revenue growth, which increased 17% in the first quarter, or 19% in constant currency.
briefly hit by the Trump administration’s blacklisting of Huawei, the Chinese smartphone maker that it views as a security threat. It gave companies like Google a 90-day reprieve before they must stop doing business with Huawei, though trade tensions remain a question mark.” data-reactid=”61″ type=”text”>Alphabet may be seeing clicks growth slow in part due to Amazon’s aggressive entry into search advertising, though management blamed the sluggish growth in the quarter on changes to how ads were presented. The company was also briefly hit by the Trump administration’s blacklisting of Huawei, the Chinese smartphone maker that it views as a security threat. It gave companies like Google a 90-day reprieve before they must stop doing business with Huawei, though trade tensions remain a question mark.
Despite those growth areas, Alphabet’s near-term fate will likely by determined by its advertising business, as the latest quarterly report made clear.
Value investors may prefer Alphabet, as the stock is considerably cheaper than Amazon, trading at a P/E of 29, versus 77 for Amazon. But between the two companies, Amazon seems to have the better strategy, having built a network of competitive advantages that it is using to expand into new businesses and leverage existing ones. As a result, it’s seeing tremendous profit growth.
Alphabet, on the other hand, has struggled to move beyond search, and its new business ventures seem disconnected from its strength there.
Because of its profit growth, overall strategy, and reputation for disrupting industries, Amazon looks like the better buy here. Alphabet is no slouch as a tech stock, but the company seems to face more near-term challenges.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Berkshire Hathaway (B shares), and Facebook. The Motley Fool has a disclosure policy.” data-reactid=”77″ type=”text”>John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Berkshire Hathaway (B shares), and Facebook. The Motley Fool has a disclosure policy.