The pandemic has undeniably hastened the world's dependency on the Internet, from the global shift to remote and hybrid work models to the unparalleled surges in gaming, streaming, and AR/VR adoption. The Internet has unequivocally occupied a central and enduring position in this paradigm shift.
Given this context, I evaluated two internet stocks, Amazon.com, Inc. (AMZN) and Alphabet Inc. (GOOGL), to determine which could be a better pick for investors. Before examining the highlighted stocks, let's first delve into the dynamics of the Internet industry.
With the global surge in digitalization, both businesses and individuals have grown ever more dependent on swift and uninterrupted internet connectivity. As of April 2023, the worldwide tally of internet users reached 5.18 billion, constituting a substantial 64.6% of the global population, according to Statista.
The industry is witnessing significant growth as businesses bolster their online presence, broaden their product range, expand their market reach, and operate continuously on multiple e-commerce platforms. This year, the global e-commerce market is expected to reach $6.30 trillion, with forecasts exceeding $8.10 trillion by 2026.
The rise of 5G technology is further catalyzing the internet sector's rapid expansion, delivering swifter internet speeds and heightened connectivity. Concurrently, the deployment of fixed wireless access, cloud-based infrastructure, and the growing embrace of Internet of Things (IoT) devices are solidifying the industry's prospects.
Going forward, the global wireless internet services market is estimated to grow at a 7% CAGR, reaching $921.97 billion by 2027, as per a report by ReportLinker. As a result, both AMZN and GOOGL are expected to benefit from the industry’s tailwinds.
AMZN has gained 4.9% over the past month compared to GOOGL’s 3.1% gain. Also, AMZN has jumped 12.5% over the past three months, compared to GOOGL’s 9.7% rise during the same period.
Moreover, AMZN has surged 44.6% over the past nine months to close the last trading session at $138.12, while GOOGL has surged by 34.3% during the same time frame to close the last trading session at $135.66.
But which Internet stock could be a better pick? Let’s find out.
Recent Developments
On August 1, AMZN's AWS unveiled the AWS Israel (Tel Aviv) Region, offering businesses, developers, and organizations in Israel a strategic advantage. The launch would enable them to leverage cutting-edge AWS technologies, enhancing innovation as they serve local and global end users from state-of-the-art data centers.
This move could expand AMZN's global footprint, enabling it to tap into the thriving Israeli market and ultimately drive increased revenue and market share for the company.
On May 23, GOOGL introduced Product Studio, a game-changing generative AI tool for e-commerce visuals. This innovation enhances product displays on GOOGL's platform, showcasing the company's AI prowess and engineering excellence. This positions GOOGL to deliver superior services, reinforcing its industry leadership and market appeal.
Recent Financial Results
For the second quarter that ended June 30, 2023, AMZN’s net sales increased 10.9% year-over-year to $134.38 billion. Its operating income grew 131.6% year-over-year to $126.70 billion. In addition, the company’s net income and EPS came in at $6.75 billion and $0.65, compared to a net loss and loss per share of $2.03 billion and $0.20 in the prior year’s quarter.
For the second quarter that ended June 30, 2023, GOOGL’s revenue increased 7.1% year-over-year to $74.60 billion. Its net income and EPS grew 14.8% and 19% from the prior year’s period to $18.37 billion and $1.44, respectively. Furthermore, its cash inflow from operating activities rose 47.6% from the year-ago value to $28.67 billion.
Past And Expected Financial Performance
Over the past three years, AMZN’s revenue and EBITDA increased at a CAGR of 18.7% and 17%, respectively. However, its EPS and net income both had marginal CAGR declines during the same time period.
Analysts expect AMZN’s revenue to increase 11.6% year-over-year to $635.79 billion for the fiscal year ending December 2024. Likewise, the company’s EPS for the same fiscal year is expected to rise 39.2% from the prior year to $3.00.
Over the past three years, GOOGL’s revenue and EBITDA grew at a CAGR of 20.4% and 25.7%, respectively. Moreover, its net income and EPS grew at respective CAGRs of 24.6% and 27.6% during the same time frame.
The consensus revenue estimate of $339.08 billion for the fiscal year ending December 2024 reflects an 11.4% year-over-year improvement. Moreover, the consensus EPS estimate of $6.60 for the next fiscal year reflects an 18% rise year-over-year.
Valuation
In terms of trailing-12-month non-GAAP PEG, GOOGL is currently trading at 28.74x, 73.6% lower than AMZN, which is trading at 108.76x. Moreover, GOOGL’s trailing-12-month EV/EBITDA multiple of 17.85 is 26.3% lower than AMZN’s 24.21. Additionally, GOOGL’s trailing-12-month Price/Cash Flow of 17.28x is 25% lower than AMZN’s 23.04x.
Profitability
AMZN’s trailing-12-month revenue is 1.9 times that of what GOOGL generates. However, GOOGL is more profitable, with a trailing-12-month gross profit margin of 55.59%, compared to AMZN’s 45.53%.
Additionally, GOOGL’s trailing-12-month EBITDA margin and net income margin are 31.56% and 21.05%, respectively, compared to AMZN’s EBITDA margin of 11.79% and net income margin of 2.43%.
POWR Ratings
AMZN has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. Conversely, GOOGL has an overall rating of B, translating to Buy. 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. AMZN has a D grade for Value, justified by its higher-than-industry valuation. In terms of trailing-12-month non-GAAP P/E, the stock is trading at 108.76x, 22.4% higher than its five-year average of 88.84x. Also, its trailing-12-month EV/EBIT of 86.71x is 14.4% higher than the 75.77x five-year industry average.
On the other hand, GOOGL has a C grade for Value, justified by its mixed valuation. In terms of trailing-12-month non-GAAP P/E, GOOGL is trading at 28.74x, 8.7% higher than its five-year average of 26.45x. Also, its trailing-12-month EV/EBIT of 21.31x is 6.1% lower than the five-year industry average of 22.70x.
In addition, AMZN has a C grade for Stability, in sync with its 24-month beta of 1.44. GOOGL also has a C grade for Stability, justified by its 24-month beta of 1.20.
Of the 60 stocks in the Internet industry, AMZN is ranked #15, while GOOGL is ranked #6.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Quality, and Sentiment. Click here to view AMZN’s ratings. Get all GOOGL ratings here.
The Winner
In the wake of the pandemic, the internet's significance soared as it facilitated remote work, gaming, streaming, and AR/VR adoption worldwide. Accelerated digitalization has amplified the demand for seamless connectivity, underpinning the internet's central role in modern life.
Notably, prominent Internet stocks AMZN and GOOGL are well-positioned to capitalize on these promising industry prospects. However, considering AMZN’s comparatively lower profitability and heightened valuation, its competitor, GOOGL, seems to be a better buy now.
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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GOOGL shares were trading at $135.66 per share on Monday afternoon, down $0.51 (-0.37%). Year-to-date, GOOGL has gained 53.76%, versus a 18.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
Top Internet Stock Showdown: Amazon.com (AMZN) vs. Alphabet (GOOGL) StockNews.com
