Amazon (AMZN +0.20%) and Disney (DIS +0.12%) both dominate their industries and have tons of potential within their various businesses. They've both felt pressure over the past few years, like most companies in a volatile economy, and their stocks are both climbing again.
If you could only choose one today for your portfolio, which incredible stock would be the right choice?
The case for Amazon: E-commerce, AI, and more
Amazon is the second-largest company in the U.S. by sales, but its size shouldn't deter you from thinking its growth is over. The company has many tailwinds that could propel it forward, and due to its unmatched dominance, it can benefit from external tailwinds more than any other.
Its core business, for now, anyway, continues to be e-commerce. E-commerce continues to gain a foothold in American households and keeps growing as a percentage of overall retail sales. Amazon keeps improving its e-commerce logistics, making it the go-to source for more shoppers. As they rely on Amazon for more of their essentials and other purchases, Amazon should continue to enjoy growth from e-commerce.
Some of the investments it's recently made in its delivery systems include switching to a regional fulfillment network and putting more items in each box. The restructuring gets orders to customers faster and costs less for Amazon, leading to higher profits as well as greater shopper loyalty.
NYSE: DIS
Key Data Points
However, the big thing everyone is talking about right now is Amazon's investments in generative artificial intelligence (AI), which supports Amazon Web Services (AWS) products. It's created a formidable AI program with several levels of customization to meet varied needs from developers through to store owners. AWS is the largest cloud service company in the world and continues to ink deals with new customers and expand partnerships with current customers, including Southwest Airlines and Stripe, in the 2024 first quarter. Its AI services are another draw for new customers, and AWS sales growth accelerated to 16% year over year in the first quarter.
Amazon's fastest-growing business is advertising, which increased 23% year over year in the first quarter. Amazon's e-commerce platform, where shoppers are already in place to spend money, is a no-brainer space for advertisers, and Amazon's AI algorithms can show shoppers exactly what they're looking for, leading to high conversions. It also recently launched an ad-supported streaming tier, joining the ranks of Disney and Netflix, which expands its advertising opportunities (on top of generating higher streaming sales).
Amazon is well positioned to dominate these industries and stay ahead for the foreseeable future.
The case for Disney: Profitable streaming will lead to a surge
Disney's been struggling since the beginning of the pandemic, but it's getting closer to its history as a profitable growth machine. Like Amazon, it's a leader in several areas, from theme parks to films and streaming. Its model is circular, though, and all of its businesses revolve around entertainment and its unmatched content and characters.
Parks are back to strong growth. Disney offers a unique, immersive experience that loyal fans can't find anywhere else, and the company has been able to raise ticket prices as demand has soared. It's investing $60 billion in parks and other experiences, including resorts and cruises, over the next 10 years. Unlike its other businesses, parks are nearly impossible for competitors to replicate, making them extremely valuable assets.
NYSE: DIS
Key Data Points
But Disney leads in films and content as well. It typically accounts for more of the highest-grossing films at the box office than any other company, with its many studios, including Disney, Pixar, Marvel, 20th Century, and others. These films eventually populate its streaming channels, and they also lead to sequels and related content that drives the entertainment model.
Disney is a top streaming network, but it has cost plenty to reach that goal. Investors have been disappointed in how long it's been taking to get it profitable, but the company reported major progress in the fiscal second quarter (ended March 30), with entertainment streaming, leaving out sports, already profitable. It anticipates becoming fully profitable by the fourth quarter, coming up soon.
If that happens while parks are in good shape and it has some of its expected hit films out in theaters, Disney stock could surge by the end of the year. Longer-term, it will be well positioned to grow its business from all angles -- experiences, films, and streaming.
One of these stocks looks better than the other today
Disney and Amazon stocks are both beating the market this year, although Disney stock fell after the second-quarter report. Revenue inched up only 1%, and it reported a major decline in generally accepted accounting principles (GAAP) earnings per share.
In this contest, Amazon is the winner. Disney is still dealing with several challenges, from the unprofitable streaming to the continued decline of its linear networks segment, comprising broadcast TV and cable. Amazon, on the other hand, is fully in growth mode, and it looks like an excellent stock to consider right now.
