Investors are getting excited about Amazon (AMZN 0.43%) again as it gets its costs under control while still demonstrating growth and innovation. Its stock is up 66% this year, undoing some of its losses from last year but still off its highs in 2021.
Airbnb (ABNB -0.14%) is in a similar boat, up 64% this year as it continues to demonstrate strength in a tough market but 35% off its highs just after it went public.
These stocks are both gaining momentum and value right now. But which one is the better buy today?
The case for Amazon: Getting back to growth
Amazon has become a leader in almost every industry it's entered, from books to overall e-commerce to cloud services and more. At the very least, it becomes a major contender, such as in digital grocery and pharmacy. What's more, it's excellent at keeping its leadership position. That's a positive cycle where its dominance and top technology attracts more customers, driving it to more investments and more customers.
Yet Amazon struggled last year between slowing demand (after incredible pandemic highs), inflation, increased costs, and too much infrastructure. Still, it's demonstrating progress as it cuts costs and maintains its lead in its markets.
This was on display in the 2023 second quarter. Sales increased 11% over last year, beating guidance of 5% to 10% growth. Operating income was $7.7 billion, also crushing its prior estimate of between $2 billion and $5.5 billion. Amazon also went back to making money, with $6.7 billion in net income, or $0.65 in earnings per share (EPS), as compared with a $2 billion loss last year. Free cash flow also returned to the positive at $7.9 billion after an outflow of $23.5 billion last year.
Even better, it's expecting this to continue into Q3. Management is calling for sales to increase about 11% again and for operating income of about $7 billion, as compared with $2.5 billion last year in Q3.
Amazon stock is flat over one year, and it trades at a forward one-year price-to-earnings ratio of 47. No one would call that cheap, but it's cheap for Amazon, which typically trades at a premium valuation because it's so reliable for growth.
The case for Airbnb: Dominating its industry
Airbnb stock was due for a decline after it ran up quickly after its initial public offering (IPO). Now it's climbing up slowly as investors are more careful in the wake of the bear market, and Airbnb is showing its staying power.
It continues to build on prior growth even though the pace of its gains is decelerating. It also beat Q2 guidance, which was 12% to 16%, with an 18% year-over-year increase in revenue.
And while it's still demonstrating double-digit revenue growth, it's becoming a profitability powerhouse. Net income was $650 million in Q3, up from $379 million last year, and it generated $900 million in free cash flow, or $3.9 billion in the trailing 12 months.
There are many reasons to be excited about the company's future, but I'll focus on what I see as the two major ones. One, it reaches so many more people than the standard hotel company. It offers a huge array of rental types, budgets, and regions, including places large hotel companies can't reach.
Two, it's the classic example of an asset-light company, with an advanced, digital platform and no inventory. Other companies that operate a similar model are heavily invested in expenses like marketing and research, but Airbnb has figured out how to efficiently operate the platform model as well as reach a level of scale where it can reap huge profits.
Airbnb stock trades at 31 times forward one-year earnings, so it's significantly cheaper than Amazon stock according to that metric.
Which is the better buy?
This is a tough contest, because I see so much to like about each of these stocks, and I recommend them both.
If I had to choose one, I would go with Airbnb today. It's growing consistently, and it's become incredibly profitable. It has a huge future, and it's cheaper than Amazon.
