Many corporations that fell victim to the downturn last year are roaring back along with the broader market. That's what we are seeing with Amazon (AMZN 1.62%) and Netflix (NFLX 0.92%), two companies that need no introduction. Of course, many people, myself included, never thought Amazon or Netflix would stay down for long. Both companies still have excellent prospects that make them buys, even after the superb run they are seeing on the market in 2023. Let's find out why.
1. Amazon
Amazon's strong comeback on the market this year shouldn't come as too much of a surprise. The company undeniably faced issues, including a slowdown across all its major segments, even cloud computing. The dip in ad spending affected Amazon, too, as has lower consumer spending brought forth by economic troubles. However, the market is forward-looking, and it seems to appreciate how promising Amazon's business still looks at a market cap above $1 trillion.
Perhaps the most exciting aspect of the company is still Amazon Web Services, its cloud unit that has been responsible for the bulk of its profits over the past few years. While competition has been heating up in this industry, Amazon is making moves of its own, particularly within the artificial intelligence (AI) side of things. The company recently unveiled Amazon Bedrock to help developers build generative AI applications (those, like ChatGPT, that generate text, images, or some other output as a response to a set of instructions).
Amazon is seeking to profit from the exciting and rapidly expanding generative AI market, which could pay hefty dividends.
But that's just one of the opportunities the company can take advantage of in the coming years. The e-commerce market will continue to grow, the advertising industry should rebound, and Amazon is investing in other spaces, including healthcare. In the first quarter, Amazon's revenue increased by 9% year over year to $127.4 billion.
That is more or less in line with the top-line growth rates it has recorded over the past year and a half.
AMZN Revenue (Quarterly YoY Growth) data by YCharts.
Amazon showed solid progress on the bottom line: The company's net loss of $3.8 billion in the first quarter of 2022 turned into a net income of $3.2 billion this time around. The company has made an effort to cut costs, most notably with a series of job cuts. Investors should expect Amazon's revenue and earnings growth to increase even more as economic conditions improve and its business rebounds.
And over the long run, the tech giant will still deliver excellent returns, which makes its stock a buy right now.
2. Netflix
Streaming giant Netflix had to change and shake up its business in response to the industry's rapidly evolving and increasingly competitive nature. Some of the company's most notable moves include introducing an ad-supported tier and charging subscribers for extra slots or sub-accounts shared with people outside their households. However, the core of Netflix's business hasn't changed, nor has the company's long-term goal.
Netflix seeks to change how we entertain ourselves and put cable out of business once and for all. To that end, the company invested billions into creating original content. And although streaming seems ubiquitous, there is still plenty of room to grow for the industry. Consider that in the U.S., streaming made up "only" 37.7% of television viewing time in June.
The U.S. is one of Netflix's most penetrated markets. Streaming has a much lower hold on television viewing time in most other regions, which is excellent news for the company.
There is the possibility that several other platforms will dethrone Netflix, but that seems unlikely for several reasons. First, the company's powerful brand name has become synonymous with streaming. To netflix is becoming a verb, at least in everyday language. Once a company becomes entrenched in people's habits, it is difficult for consumers to forget about it altogether.
Second, Netflix uses its large user base and the extensive data on viewer habits it collects to figure out what people want to watch and create new shows and movies accordingly. The proof is in the pudding: Many of Netflix's creations have been highly successful. The company has won plenty of awards. That should continue in the future. In my view, it will be several decades before streaming reaches its peak worldwide.
In the meantime, Netflix should continue increasing its share of television viewing time, revenue, profits, and free cash flow, which the company has been focusing on recently. Netflix's shares recently dropped following mixed second-quarter results, but the company's stock performance this year (and its prospects) remain upbeat. It's not too late to invest in Netflix just yet -- far from it.
