Amazon vs Netflix: which is the best growth stock to buy?
Two successful companies are often discussed in the same breath, whether it’s their continued presence in the popular FAANG stock group or the fact that they both offer fast-growing streaming TV services. These stocks are none other than Amazon (NASDAQ: AMZN) and Netflix (NASDAQ: NFLX), two longtime Wall Street darlings.
Today, these two companies remain extremely successful, continuing to rapidly increase their bottom line and bottom line. Indeed, a good case can still be presented to buy the shares of the two companies.
But which of these two growth stocks is the best buy today: e-commerce, cloud computing and digital services giant Amazon or pure-play streaming TV specialist Netflix?
Amazon has stubbornly resisted the significant deceleration in growth that you would expect from a company as large as it is. Indeed, revenue growth accelerated last year. In 2019 and 2020, turnover increased by 20% and 38% respectively. Of course, the 2020 results have benefited significantly from the increased use of e-commerce, as people around the world have taken refuge in their homes in the midst of a pandemic. But even though Amazon makes difficult comparisons from 2020, it is growing rapidly. Second quarter 2021 net sales increased 27% year-on-year.
The company’s profits grew even faster. Net profit for the 12 months ended June 30, 2020 was $ 29.4 billion, compared to $ 13.2 billion in the same period a year earlier.
And Amazon’s stock isn’t as expensive as you might think. Yes, its $ 1.6 trillion market cap is hard to fathom. But with $ 443 billion in sales over the past 12 months, $ 59.3 billion in operating cash flow, rapidly growing revenue, and a steadily increasing operating margin, this assessment is starting to show. sound cautious or even cheap.
Streaming TV company Netflix is also growing fast in revenue. Revenue increased 19% year-over-year in the second quarter.
But the real magic for Netflix right now is the company’s soaring profits. EPS in the second quarter was $ 2.97, up from $ 1.59 in the prior year period. More importantly, analysts expect rapid profit growth to persist over the next five years due to the scalability of the company’s business model. Content costs and other expenses are rapidly declining as a percentage of revenue.
On average, analysts expect Netflix’s earnings per share to grow at an average annual rate of 43% over the next five years, ahead of Amazon’s expected 36% growth. Understanding Netflix’s bizarre earning potential is key to justifying its high price-to-earnings ratio of 56.
Overall, both stocks appear to be attractive long-term investments. But the best buy may be Amazon, thanks to its robust growth in revenue and bottom line and its sprawling competitive advantages thanks to its powerful Prime member benefit wheel and its leadership in commerce. electronics and cloud computing.
Amazon’s growth story ultimately looks more sustainable and predictable, as the company benefits from many secular tailwinds in various aspects of its business.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.