Inflation peaked at 9.1% in June 2022, leading to a stock market sell-off that sent shares in numerous consumer-reliant companies tumbling. Inflation has eased every month since, with the same figure at 6.4% in January 2023. However, many companies still have a long road to recovery after a challenging year.
Throughout 2022, Amazon (AMZN 3.43%) and Warner Bros. Discovery's (WBD -2.17%) stocks plunged 50% and 62%, respectively, amid macroeconomic headwinds and remain down between 39% to 44% year over year. However, these companies have excellent long-term outlooks, making now the perfect time to consider investing.
So, is Amazon or Warner Bros. Discovery's stock the better buy? Let's assess.
Amazon
The steep rise in inflation last year was detrimental to Amazon's e-commerce business, with its North American and international segments reporting combined operating losses of $10.6 billion in fiscal 2022. Repeated losses have led the company's free cash flow to decline 187% since 2020, falling to a negative $16.9 billion.
Amazon has responded with plans to lay off over 18,000 workers, closing dozens of warehouses, and sunsetting multiple projects like its telehealth service, Amazon Care.
Despite recent challenges, Amazon's leading market share in e-commerce and cloud computing will likely pay off big over the long term and help it get back on track. According to Grand View Research, the e-commerce market was worth $9.09 trillion in 2019 and is projected to expand at a compound annual growth rate (CAGR) of 14.7% through 2027. Meanwhile, Amazon is by far the biggest online retailer with a 37.8% U.S. market share.
Additionally, the company's position in the cloud market with Amazon Web Services has become a major asset. Last year, the service earned 100% of Amazon's $12.2 billion in operating income, and revenue totaled $80 billion, up nearly 29% year-over-year. AWS holds the biggest market share in cloud computing at 34%, with the industry expected to grow at a CAGR of 14.1% through 2030.
Amazon has a lot of work to do to get its e-commerce business back to profitability. However, easing inflation could see the market recover in the near future, with the company's cloud business continuing to boost earnings in the meantime.
Warner Bros. Discovery
Warner Bros. Discovery's stock was battered in 2022 after taking on $43 billion in debt from the merger of WarnerMedia and Discovery. Investors were also concerned with some of the company's controversial and expensive restructuring moves. However, the company has said that with its restructuring largely complete, 2023 is a year of rebuilding.
The news is promising. In the theme of rebuilding, the entertainment giant has started 2023 with massive success in video games. On Feb. 10, Warner Bros. Discovery released the Harry Potter-themed video game Hogwarts Legacy. The new title earned $850 million in its first two weeks and sold more than 12 million units via Sony's PlayStation 5, Microsoft's Xbox Series X|S console, and personal computers.
Moreover, Warner Bros. Discovery revealed in its fourth-quarter 2022 earnings call that engagement with Wizarding World Digital, responsible for e-commerce and online news concerning Harry Potter, skyrocketed 300% in the first 10 days of February. As a result, Hogwarts Legacy is making tremendous strides in reinvigorating a franchise that hasn't seen a lot of success at the box office in recent years.
Warner Bros. Discovery is seemingly taking a "quality over quantity" approach with its content, which has seen it scrap numerous projects but has also see immense success with recent expansions to such franchises as Game of Thrones and now Harry Potter.
In Q4 2022, Warner Bros. Discovery's revenue totaled $11.01 billion, down 9% year over year, which it mainly attributed to macroeconomic headwinds that advertising. The company ended the quarter with $49.5 billion in gross debt and $3.9 billion in cash on hand. Warner Bros. Discovery still has a long way to go to reach profitability. However, its focus on producing engaging and quality content from now on could take it far, whether in gaming, streaming, or at the box office.
Amazon and Warner Bros. Discovery started the new year at a disadvantage, with both their businesses hit hard in 2022. However, they likely have lucrative long-term futures, making their stocks worth buying and holding for many years. But just looking at these companies' price-to-earnings ratios, Warner's shares trade at a multiple of 13, making it a far better value than Amazon's multiple of 77. As a result, Warner Bros. Discovery shares are the better buy right now, and a bargain at their current price.
