The internet has seamlessly integrated into contemporary life, shaping the way people communicate, shop, and conduct work. The global embrace of digital technologies and internet usage creates a fertile ground for companies within this industry to flourish.
Given the solid backdrop, in this piece, I have evaluated the fundamentals of social media icon Meta Platforms, Inc. (META) and e-commerce behemoth Amazon.com, Inc. (AMZN), with the aim to determine which one could emerge as a better investment candidate. Before we dive into the comparison of these two internet stocks, let us a take a peek into the broader industry outlook.
The pandemic spurred the adoption of several digital solutions designed to cater to daily needs conveniently from the comfort of one's home. This abrupt and widespread shift to online activities skyrocketed the demand for internet services and products worldwide.
For instance, in 2022, the global e-commerce market attained a substantial size of $16.60 trillion. Looking ahead, analysts project the market to achieve an impressive $70.90 trillion by 2028, showcasing a remarkable CAGR of 27.4% during the period from 2022 to 2028.
Conversely, the increased internet penetration has given rise to a global landscape in which, as of July 2023, there were 5.19 billion internet users worldwide, constituting 64.6% of the global population.
Within this expansive online community, a staggering 4.88 billion individuals, equivalent to 59.9% of the global populace, actively participated in diverse forms of social media interaction, highlighting these platforms' widespread reach and influence.
Furthermore, in the transformed post-pandemic business landscape, the worldwide internet services market was valued at $487.70 billion in 2022 and is anticipated to expand significantly to reach $916.50 billion by 2030, growing at an impressive CAGR of 8.2% during the forecasted period from 2022 to 2030.
Overall, the industry’s outlook presents a favorable landscape for META and AMZN. However, META appears to have outperformed AMZN in terms of price performance by surging 154.7% over the past nine months, compared to AMZN’s 51.7% gain during the same period.
Moreover, META has gained 4.3% over the past month to close the last trading session at $297.74, while AMZN’s shares, on the other hand, plunged 5.5% over the same period to close the last trading session at $125.98.
With these factors in mind, let us dive into the fundamentals of the featured stocks to determine which Internet stock could be a better pick.
Recent Developments
On July 18, META strengthened its longstanding collaboration with Microsoft Corporation (MSFT) by selecting it as the favored partner for Llama 2, an open-source large language model available for free for research and commercial purposes. Access to Llama 2 is being facilitated with the backing of various companies and individuals representing technology, academia, and policy domains.
On March 21, AWS and NVIDIA Corporation (NVDA) jointly announced a comprehensive collaboration to create a highly scalable and on-demand AI infrastructure. This infrastructure is specifically optimized for training sophisticated Large Language Models (LLMs) and developing generative AI applications.
Recent Financial Results
For the second quarter that ended June 30, 2023, META’s total revenue increased 11% year-over-year to $31.99 billion, while its income from operations grew 12.4% from the year-ago value to $9.39 billion. META’s net income and EPS amounted to $7.79 billion and $2.98, representing increases of 16.5% and 21.1%, respectively, from the prior year’s quarter. Also, its free cash flow stood at $10.95 billion, up 146.2% year-over-year.
Conversely, AMZN’s total net sales for the fiscal second quarter (ended on June 30, 2023) increased 10.8% year-over-year to $134.38 billion, while its total operating expenses rose 7.5% from the year-ago value to $126.70 billion.
During the same period, the company’s net income and EPS amounted to $6.75 billion and $0.65 versus a net loss and loss per share of $2.03 billion and $0.20 in the same period last year, respectively. However, its cash and cash equivalents came in at $49.53 billion, declining 8.1% compared to $53.89 billion as of December 31, 2022.
Past And Expected Financial Performance
META’s revenue and levered FCF grew at CAGRs of 17.1% and 18.2% over the past three years. Analysts expect META’s revenue and EPS for the third quarter (ending September 2023) to increase 20.6% and 117.5% year-over-year to $33.41 billion and $3.57, respectively.
On the other hand, over the past three years, AMZN’s revenue grew at a CAGR of 18.7%, whereas its levered FCF declined at a CAGR of 14.4%. Analysts expect AMZN’s revenue and EPS for the third quarter (ending September 2023) to increase 11.4% and 106.5% year-over-year to $141.55 billion and $0.58, respectively.
Valuation
In terms of forward non-GAAP P/E, AMZN is currently trading at 57.44x, 155.9% higher than META, which is trading at 22.45x. Moreover, AMZN’s forward EV/EBIT multiple of 49.26x is 178.5% higher than META’s 17.69x. Additionally, AMZN’s forward EV/EBITDA multiple of 14.13x is 27.3% higher than META’s 11.10x.
Thus, META is more affordable.
Profitability
META is more profitable, with a trailing-12-month gross profit margin of 79.45%, compared to AMZN’s 45.53%. Additionally, META’s trailing-12-month EBITDA margin of 37.27% is higher than AMZN’s 11.79%. Furthermore, META’s trailing-12-month net income margin of 18.71% compares to AMZN’s net income margin of 2.43%.
POWR Ratings
META has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. Conversely, AMZN has an overall rating of C, translating to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. META has a B grade for Growth, justified by its robust financial growth in the last reported quarter. Conversely, AMZN’s C grade for Growth is in sync with its mixed growth in the last reported quarter.
Moreover, META has a C grade for Value, justified by its mixed valuation. The stock’s forward non-GAAP PEG multiple of 1.02x is 31.7% lower than the industry average of 1.49x. However, its forward EV/EBITDA multiple of 11.10x is 37.7% higher than the industry average of 8.06x.
On the other hand, AMZN’s D grade for Value is justified by its higher-than-industry valuation. In terms of forward non-GAAP P/E, AMZN is currently trading at 57.44x, 312.8% higher than the industry of 13.91x. Likewise, the stock’s forward EV/EBIT multiple of 49.26x is 281.9% higher than the 12.90x industry average.
Among the 58 stocks in the Internet industry, META is ranked #9, while AMZN is ranked #15.
Beyond what we’ve stated above, we have also rated both stocks for Momentum, Stability, Sentiment, and Quality. Click here to view META’s ratings. Get all AMZN ratings here.
The Winner
While both META and AMZN thrive in a promising industry, META shines with superior financial performance, valuation metrics, and profitability when compared to AMZN, making it a better investment option.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Internet industry here.
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AMZN shares were trading at $126.07 per share on Thursday afternoon, up $0.09 (+0.07%). Year-to-date, AMZN has gained 50.08%, versus a 13.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
Meta Platforms Inc. (META) vs. Amazon.com (AMZN): Which Is the Superior Internet Stock? StockNews.com
