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Better Buy: Amazon.com, Inc. vs. Google

By Joe Tenebruso - Dec 17, 2017 at 8:02PM

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We pit these two market titans against each other to see which is the best investment today.

Few businesses are as dominant in their respective industries as Amazon.com (AMZN 0.73%) 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.

Two male lions facing each other, one snarling at the other.

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 1.16%) (GOOG 1.17%) 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) Chart

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.

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Stocks Mentioned

Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$2,291.44 (1.16%) $26.18
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$114.33 (0.73%) $0.83
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$2,304.27 (1.17%) $26.53

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