Over the last quarter-century, it would be difficult to find companies that better typify the internet age than e-commerce giant Amazon.com (NASDAQ:AMZN) and search leader Google, a subsidiary of Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG). Both companies are the undisputed leaders in their respective industries, which has resulted in massive returns for investors. Since Google's debut in 2004, its stock price has gained over 2,000%, while Amazon stock is up more than 4,000% during the same period. Since its IPO in May 1997, Amazon stock has gained a mind-boggling 85,000%.
Those impressive results aren't confined to some distant past, either. Each company has continued its winning ways, becoming key innovators in the nascent technologies of artificial intelligence and cloud computing. Over the past three years, Alphabet's share price is up more than 100%, while Amazon's has gained nearly 300%.
An investor could hardly go wrong owning either of these companies, but which is the better stock to buy or add to today?
Future growth prospects
While each company has grown to dominate its respective industry, the path forward looks very different.
Google is the global leader in search, with market share of more than 90%, and generates the majority of its revenue from online ads. The company has become part of a duopoly -- along with Facebook -- that controls the majority of the U.S. internet advertising market.
The digital ad market in the U.S. generated revenue of $88 billion in 2017, up 21.4% year over year, according to the Interactive Advertising Bureau. For its part, Alphabet's total revenue last year grew to $110.8 billion, up 23% compared to 2016. Analysts expect the company to generate sales of $136 billion this year, an increase of 23% compared to 2017.
The bulk of Amazon's revenue comes from online sales, which are only just getting started. E-commerce accounted for 9.3% of U.S. retail in the first quarter of 2018, up from about 3.5% in 2008, and that growth is expected to continue. Amazon is believed to have captured 44% of all online sales and 4% of total retail in the U.S. last year.
Amazon generated total revenue of $177.8 billion in 2017, an increase of 31% compared to the prior year. It's important to note that international sales represent only about 30% of Amazon's total revenue, while the company continues its aggressive expansion overseas. Analysts expect Amazon to grow sales to $234 billion this year, up 33% compared to 2017.
With much of the world still to conquer and overall e-commerce adoption growing, Amazon has a greater growth opportunity in its core market.
The competitive landscape
Due to the breadth of the companies' interests, each has a significant number of well-heeled competitors, though they differ depending on their industry and focus.
In e-commerce, Walmart (NYSE:WMT) is likely Amazon's biggest competitor in the U.S., ramping up its online chops in recent years and acquiring Flipkart to challenge Amazon in India. While some might consider Alibaba competition, that company's business more closely resembles eBay, acting as a platform for sales, rather than selling the goods itself.
When it comes to streaming video, Netflix is the leader. It's estimated that 61% of streaming video on-demand customers subscribe to Netflix, while 36% stream Amazon Prime Video, according to Hub Entertainment Research's Decoding the Default report.
In the digital ad space, Google's biggest competition comes from Facebook, which captured about 21% of the online ads in the U.S. last year, compared to Google's 42% share. Amazon has ambitions in the digital ad space, though it has yet to make its presence felt.
Google's Waymo is widely considered to be the leader in self-driving vehicles, and is planning to roll out an autonomous ride-hailing service later this year. And in this segment, General Motors is believed to be its closest competition. It should be noted that Google spun out Waymo into a separate company in late 2016, and Waymo is now owned directly by Alphabet.
There are several other areas where the companies compete directly. Google's YouTube competes for eyeballs against both Netflix and Amazon Prime, though its revenue still comes by way of ad sales. Amazon dominates the cloud computing infrastructure-as-a-service (IaaS) segment -- which it pioneered -- with growing competition from both Microsoft and Google. The world's most popular smart speakers are Amazon Echo and Google Home, as Google begins to take market share in a segment that Amazon has dominated.
The most important takeaway from this exercise is that while each company faces significant competition, Amazon holds commanding positions in numerous segments -- e-commerce, cloud computing, voice-controlled smart speakers, and streaming video -- and is trying to muscle its way into the advertising space. Google leads in advertising and self-driving cars, and is closing the gap in the voice-controlled speaker segment.
Calling a winner here is purely subjective, but by its commanding lead in some areas and its pursuit of the leader in others, Amazon gets the nod.
But which one is the better buy?
On a price-to-earnings perspective, Alphabet comes out ahead with a forward multiple of 26, compared to Amazon's valuation of 136 times forward earnings. Investors are obviously expecting much higher growth from the e-commerce juggernaut.
Trying to choose between these two innovative and industry-leading giants might be akin to trying to pick your favorite child. For the majority of investors, I would suggest holding positions in both.
If forced to choose only one, however, I would pick Amazon. It has a much longer runway for growth, it competes in several important and emerging technologies, and it still has the remainder of the world to conquer.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Danny Vena owns shares of Alphabet (A shares), Amazon, Facebook, and Netflix and has the following options: long January 2019 $18 calls on eBay and short October 2018 $37 calls on eBay. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, and Netflix. The Motley Fool recommends eBay. The Motley Fool has a disclosure policy.