Stock Comparative Review: Alphabet vs Amazon





These tech companies are competing in the cloud and vying for digital ad dollars

Alphabet Google and Amazon are two of the largest and most well-known brands in the world. I’m sure many people reading this article probably interact with at least one of these companies on a daily basis.

Over the past decade, shares of Alphabet and Amazon have skyrocketed 330% and 820%, respectively, leaving the broader market far behind. And given the important role these tech companies play in our daily lives, both will continue to grow in the next decade. But which stock is better to buy today?

Alphabet vs Amazon

Alphabet

Alphabet breaks down its business into three main segments:

  1. Google services;
  2. Cloud service – Google Cloud;
  3. Various kinds of experimental directions (mostly unprofitable so far) such as, for example, Waymo – a company that produces autonomous cars.

Last year, the coronavirus pandemic had a mixed impact on Google. On the one hand, people spent more time at home, which was good for Google searches and YouTube views. But on the other hand, the pandemic has created financial uncertainty for businesses around the world, resulting in a drop in global ad spending (1.2% on average). As a result, Alphabet’s overall revenue growth slowed from 23% in 2019 to 18% in 2020.

In the first quarter of 2021, the situation changed. Revenue growth accelerated to 34%, resulting in earnings of $ 26.29 per diluted share (up 166% from the prior year). Management attributed the results to “increased online consumer activity and increased advertiser revenue.”

Even though it has lost some of its share in recent years, Google remains the leader in digital advertising. In 2020, the company accounted for 28% of all digital ad spend worldwide. This advantage resulted in solid financial performance.

Indicator2017Q1 2021 (TTM)CAGR
Revenue, $ billion110.9196.7nineteen%
Free cash flow, billion $23.950.726%
SOURCE: ALPHABET SEC. TTM: 12 MONTHS. CAGR: COMPOSED ANNUAL GROWTH RATE

In the future, the management will focus on expanding Google search functionality and improving YouTube using artificial intelligence technology, which could bring in more advertising dollars for Alphabet in the future. In addition, the company will continue to actively invest in Google Cloud, which means that growth over profitability is the top priority in the near future.

Amazon

Amazon recently ranked second on Fortune’s list of most respected companies, and it’s not hard to see why. Since Jeff Bezos founded the business in 1994, it has grown to be the largest e-commerce market in North America and also the largest public cloud provider in the world.

Last year, faced with a global pandemic, Amazon posted impressive results. While other companies were laying off people, Amazon hired more than 400,000 new employees to keep up with the increased demand. The company’s sales increased 38% in North America and 40% worldwide.

Even more impressive, Amazon’s growth accelerated in the first quarter of 2021, when sales in North America jumped 40% and international sales jumped 60%. In cloud computing, Amazon performed equally impressively, with Amazon Web Services (AWS) revenue surging 32%. Like Google Cloud, AWS is growing faster than the industry as a whole, which has helped the company gain market share.

Market shareQ1 2019 Q1 2020 Q1 2021
AWS33%32%37%
Google cloudfive%6%nine%
SOURCE: CANALYS

In addition, Amazon has become a serious competitor in the field of digital advertising. As the second largest retailer in the world, Amazon has approximately 215 million unique visitors to its sites each year. This means the company has a lot of consumer data and its websites are top-notch real estate for marketers.

Perhaps most worrisome for Alphabet, Amazon is gaining market share in search advertising while Google is heading in the opposite direction. Amazon will account for 19% of US search ad spending in 2021, up from 13% in 2019, according to eMarketer.

Overall, Amazon’s three fastest growing business segments have delivered incredible financial results:

Indicator2017Q1 2021 (TTM)CAGR
Revenue, $ billion177.9419.1thirty%
Free cash flow, billion $6.421.846%
SOURCE: AMAZON SEC. TTM: 12 MONTHS. CAGR: COMPOSED ANNUAL GROWTH RATE

Output

Alphabet and Amazon are impressive companies, but Amazon stock looks preferable right now. Alphabet certainly dominates the digital ad space, but its market share is falling.

Meanwhile, Amazon is gaining share in three fast-growing industries:

  1. Ecommerce;
  2. Cloud computing;
  3. Digital advertising.

Moreover, in two of these three markets, the company is the dominant force and is quite difficult to compete with.

Review from 06/08/2021

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