Few businesses are as dominant in their respective industries as Amazon.com (AMZN 2.61%) and Google. Amazon dominates e-commerce in the U.S. and many other areas of the world, while Google is the unquestioned leader in global internet search.
As these companies have risen to power, they've earned a fortune for their investors along the way. But which is the better buy today? Let's find out.
Amazon and Google are ferocious competitors. We square them off to see which of these industry kings is the best choice for your portfolio. Image source: Getty Images.
Financial fortitude
Google and Amazon are both powerhouse businesses, but let's look at some key metrics to see if either one has an edge when it comes to financial strength. Also, please note that Google reorganized itself as Alphabet (GOOGL 0.78%) (GOOG 0.87%) in 2015, so we'll use Alphabet's figures from this point forward.
|
Metric |
Amazon |
Alphabet |
|---|---|---|
|
Revenue |
$161.2 billion |
$104.6 billion |
|
EBITDA |
$14.0 billion |
$32.7 billion |
|
Operating income |
$3.2 billion |
$25.1 billion |
|
Net income |
$1.9 billion |
$21.0 billion |
|
Operating cash flow |
$16.2 billion |
$36.2 billion |
|
Free cash flow |
$7.2 billion |
$24.3 billion |
|
Cash |
$24.3 billion |
$100.1 billion |
|
Debt |
$24.7 billion |
$4.0 billion |
DATA SOURCE: MORNINGSTAR.
Many businesses would love to have Amazon's $16 billion in annual operating cash flow. Yet Alphabet's cash production is even more remarkable, coming in at greater than twice that of Amazon at $36.2 billion. Moreover, the search titan has a staggering $96 billion in net cash on its fortress-like balance sheet, while Amazon has slightly more debt than cash. So in terms of financial strength, Alphabet earns top marks.
Advantage: Alphabet.
Growth
Alphabet may have the edge when it comes to financial fortitude, but Amazon is the clear leader in terms of revenue growth in recent years.
AMZN Revenue (TTM) data by YCharts
Wall Street expects this trend to continue, with analysts forecasting that Amazon's revenue will surge by 29% in 2018, fueled by the torrid growth of Amazon Web Services, the relentless expansion of its e-commerce operations, and the positive impact of its recent acquisition of Whole Foods. During this same time, Alphabet's revenue is projected to increase 19%, driven by the continued robust performance of YouTube and mobile search.
For businesses this size -- Amazon and Alphabet's market caps currently check in at $570 billion and $740 billion, respectively -- these growth rates are impressive. But with its significantly higher expected revenue growth, Amazon has the edge here.
Advantage: Amazon.
Valuation
No better-buy discussion should take place without a look at valuation. Let's check out some key value metrics for Amazon and Alphabet, including price-to-earnings and price-to-free-cash-flow ratios.
|
Metric |
Amazon |
Alphabet (Class A Shares) |
|---|---|---|
|
Trailing P/E |
300.65 |
35.83 |
|
Forward P/E |
146.84 |
25.79 |
|
P/FCF |
78.69 |
30.45 |
DATA SOURCES: YAHOO! FINANCE, MORNINGSTAR.
On all three metrics, Alphabet's stock is considerably less expensive than Amazon's, making the search king the better bargain.
Advantage: Alphabet.
The better buy is...
Amazon and Alphabet are both high-quality businesses that are likely to continue to reward investors in the years ahead. But with its superior financial strength and more attractively priced stock, Alphabet is the better buy today.
